So, what is TARP? It's a program to prop up banks that took on risks that have now blown up on them. Far be it for me to normally agree with Arianna Huffington, but on this point I have to agree.
What needs to be done is hard but straightforward. As Martin Wolf of the Financial Times sums it up: "Admit reality, restructure banks and, above all, slay zombie institutions at once."This tough love for bankers is being promoted by everyone from Nouriel Roubini, Paul Krugman, and Ann Pettifor to Niall Ferguson, the Wall Street Journal, and Milton Friedman's old partner, Anna Schwartz, the co-author of his seminal work, A Monetary History of the United States, 1867-1960. "They should not be recapitalizing firms that should be shut down," says Schwartz. "Firms that made wrong decisions should fail."
The plan laid out -- or, more accurately, sketched out -- this week by Tim Geithner makes it very clear that he is on the wrong side of the issue, more worried about the banking industry than the American people. Like Hank Paulson before him, Geithner appears more concerned about saving particular banks than saving the banking system. No real shocker there. As Henry Blodget points out on HuffPost, it's hard to be surprised that Geithner is sticking with the Paulson plan "inasmuch as he was
likely the one who created it."
In fact, while Geithner's plan was sketchy at best, one thing he did lay out was a stress test. This so called "stress test" will determine if a bank qualifies for financial assistance. In other words, a bank's balance sheet needs be jacked up enough in order to qualify. If you are bank that was dutiful in lending and investment then you don't qualify. This is a recipe to reward failure and that's a recipe for disaster.
Then, there is Obama's plan to save struggling homeowners.
Several major banks are expanding their efforts to halt home foreclosures while the Obama administration develops its plan to help struggling homeowners.
The White House said President Barack Obama will outline his much-anticipated plan to spend at least $50 billion to prevent foreclosures on Wednesday in a speech in Arizona.
"It's not intended to be measured by one day's market scorekeeping, but instead to ensure that the 10,000 Americans each day that have their homes foreclosed on, and the millions more that are barely getting by, are protected," White House press secretary Robert Gibbs said Friday without providing other details.
In this plan struggling homeowners will get a subsidy and a brand new loan. Not only will their rates go down but sometimes so will the balances on the loans. So, what will you get if you are on time and you have a handle on your finances? Nothing, that's what.
Don't forget the auto bailout. The automakers, for years, ran poor businesses, and so what happened? They were rewarded with government assistance. What does a well run business like Wal Mart get? Nothing, that's what.
Look at the stimulus. It will increase funding to such programs as unemployment insurance, Medicaid, food stamps, etc. All of these are programs that reward failure. They prop up those that can't help themselves. While that may in fact be compassionate, it is also a recipe for disaster. Then, there is about $50 billion to help struggling states. How did these states become struggling? They overspent that's how. So, here is the federal government stepping in to bail them out.
All of this is a zero sum game. If failure is being rewarded it is at the expense of success. All of this bailout has to be paid out somehow. If you aren't a recipient, then you are one of the ones paying. As such, while the failure gets financial assistance, that same failure is being propped up by those that were and are successful.