The Problem With The Geithner Plan: The Financial Industry's Thrift Paradox
Hale Bond writes a diary that I believe demonstrates, inadvertently, precisely what is most wrong with the Geithner Plan - the decision to ignore the fact the banks are simply not going to lend very liberally, even when bailed out. Bonddad is critical of "pressure" on JP Morgan (because it took TARP money) to do a deal with Chrysler to help Chrysler avoid bankruptcy. Bonddad says this is a pitfall of "nationalizing" banks.
It seems more of an indictment of TARP and TARP 2 (the Geithner Plan) to me. Suppose for a moment that instead of TARP and TARP 2, the $750B had been spent instead to fund a government bank dedicated to stimulating the economy and job creation/saving. Thus, a borrower like Chrysler would have made the case that loaning money to it would help stimulate the economy and save and create jobs. The government could have taken a convertible debt position and/or negotiated with existing creditors on how senior the debt to the government would be. Chrysler (and GM) are just examples of how this could have worked. TARP and TARP 2 have not spurred significant activity in the credit markets. Lending is not significantly increasing in response to TARP. Direct government loans outside of the financial industry would have been much more effective. More . . .
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