[quote=davelj]
While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.[/quote]
[quote=briansd1]
I always believed you Dave. Mathematically, it makes sense.
Infuse banks with huge capital, then lend them unlimited amounts of money at near zero % which they can turn around and lend at a nice margin. [/quote]
Sorry to nitpick, but this is factually incorrect. The “lending” that your referencing here are discount window borrowings and these are matched up on the asset side of the balance sheet with cash and short-term securities, on which there is no meaningful spread (if any at all). Now… as the Fed lowers rates, deposit rates and FHLB borrowing rates ALSO decline, on which the banks then make a “nice margin” (using your words). But… there is no margin on the discount window borrowings – that’s just for liquidity. Just making a technical point.
[quote=briansd1]
Notice that while banks’ cost of capital is near zero, the cost of debt for everybody else has not proportionately dropped. [/quote]
This is also incorrect. The banks’ “cost of capital” is most certainly not near zero. In fact, it’s quite high historically (recall that cost of equity, which is high right now, is a major component of the overall cost of capital). Discount window borrowings are just one small part of the “cost of capital” calculation, and the biggest liability on a bank’s balance sheet is deposits – which are not “capital.” I think what you meant to say is that the cost of borrowing money – from whatever source – for the large banks is low (but not near zero) from a historical perspective. But overstating your case doesn’t make it stronger.
[quote=briansd1]
I was against the bank bailouts at first, but after some reflection, I believe that it was the right thing to do to save our financial system from collapse. I only wished that at least the top bank excecs had been fired.[/quote]
Who knows. I agree that far more folks should’ve been fired. The TBTF execs are, for the most part, a bunch of dirtbags protecting their turf at all costs.
