Sep 26, 2009

Was TARP Successful?

Just when we thought the crisis might be over, real questions are emerging as to whether the US Government's financial bailout has actually been successful. According to Neil Barofsky, the Inspector General in charge of the TARP program, the US financial system could very well be in a more dangerous place than it was pre - bailout.

How could this be, I hear you asking?

Consider the following facts. The US financial system is now dependent on fewer and bigger banks than before. Despite Treasury assertions that TARP money can't be tracked because 'money is fungible', detailed records concerning the use of TARP money kept by banks shows that much of it has been used to buy stakes in other banks, making the financial world more interdependent and more exposed to 'domino effects' than previously. Not only this, but TARP has failed in its originally stated aim of stimulating bank lending (since then, Treasury shifted the goalposts for measuring success of the program - to the goal of 'preventing systemic financial failure - such that it could be deemed a success).

So all in all, it is still an open question as to whether TARP was a's gonna be real interesting to see if this program has buttressed or weakened the long term security of the US financial system.

You can watch the full interview with Barofsky below:

A further interesting profile this guy can be found here. Also, for an excellent chronology of the crisis, checkout Bernanke's recent speech at Jackson Hole.

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