So what does all this add up to? Are they really paying it back? Was the program a success? Yet to be seen? Is this just PR nonsense?[/quote]
Summary of events:
1. Treasury Secretary Paulson proposes that Congress authorize $700 billion to buy devalued MBS, with the condition that he not be accountable to anybody for his disposition of the funds.
2. Congress responds “Hell no!”.
3. Paulson says the sky is falling.
4. Congress appropriates the money with completely insufficient controls.
5. Paulson figures out that:
a. MBS owners don’t want to sell low,
b. Treasury doesn’t want to buy high,
c. $700 billion is totally insufficient to handle the magnitude of the problem.
6. Paulson and Bernanke privately agree that the $700 billion will be “invested” in certain organizations to defuse the liquidity crisis, while the Federal Reserve will print money in massive quantities to handle the bigger problem (insolvency of all the large financial organizations).
7. Federal Reserve easy money and MBS purchases, along with relaxed accounting rules, return the large banks to “solvency” and “profitability”.
8. Banks are now able to convince somebody to buy new issues of stock.
9. TARP money is repaid.
To the people running the show, #8 is the definition of success (not of TARP, but of Treasury/Federal Reserve Plan B).
It remains to be seen what consequences arise from the massive Federal Reserve money printing. To the short-term thinkers in government, any such consequences are tomorrow’s problems. (Maybe some magic will happen.)[/quote]
Excellent summary. +10
The Fed can’t stop buying MBSs and they can’t return to “normal” accounting. So they ain’t solvent.
So far nothing has been fixed. Except perception and ways to delay recognizing they have a 25 trillion dollar black hole in the market. The black hole is still there.
