Wednesday, December 9, 2009

Fight the Fed (Treasury)?

The AP is reporting this morning on Geitner's decision to extend the duration of the TARP and widen its scope to include smaller banks with commercial real estate exposure and programs to slow the rate of home foreclosures. The article includes some analysis of how well TARP has measured up to intentions of Congress when it was authorized. Elizabeth Warren, the chair of the Congressional Oversight Committee is reported in the article to offer these remarks...

In a report Wednesday, a TARP watchdog panel said the fund helped ease last fall's financial panic, but was less successful in meeting other goals Congress set — including reducing foreclosures and unfreezing credit for consumers and businesses.

"Congress set goals for the TARP that went well beyond short-term financial stability, and by that measure problems remain," said panel chair and Harvard Law school professor Elizabeth Warren.

The report found the program's effects have been uneven. A $75 billion initiative to stem the wave of foreclosures has "failed," and Treasury's actions had granted big banks an "implicit guarantee" that the government would bail them out, Warren said.

The government still is guaranteeing billions of dollars in bank assets, which along with debt guarantees from the Federal Deposit Insurance Corp., amount to ongoing subsidies that may mask the condition of the financial markets, the report said.

 Treasury responded that the TARP has "by every measure ... succeeded in achieving its primary goal of economic stabilization." In a statement, department spokeswoman Meg Reilly credited the program with improving market confidence, access to credit and economic growth.

Barring financial disasters occurring in other countries, like Greece, Britain, Ireland, Spain, Italy, euroland for starters, the continuation of TARP seems like good support for the US stock market for several more months. And virtually guarantees continuing weakness in the dollar. So much for the talk of a strong dollar policy. Scanner