A TARP chronology:
Sept. 17, 2008: Lehman Brothers has just gone under, the financial world seems to be collapsing under our ears, and Nick Brady, Gene Ludwig and Paul Volcker propose in a Wall Street Journal op-ed that the only thing that can save us is a “mechanism in place to remove” toxic real estate assets from the financial system. Sort of like the Resolution Trust Corp. that cleaned up after the S&L crisis.
Sept. 18, 2008: Charlie Gasparino breaks the news on CNBC that the Treasury Department is drawing up plans to spend hundreds of billions of dollars buying up toxic mortgage securities.
Sept. 20, 2008: The price tag is revealed, and it’s $700 billion.
Sept. 20-Oct. 3, 2008: As debt markets continue to freeze up around the world, lots of economists, and some members of Congress, wonder if it might not be quicker and more effective for the government to simply inject capital directly into troubled banks (rather than buying their toxic assets).
Oct. 3, 2008: The House of Representatives, after rejecting it the week before, approves Treasury’s “Troubled Asset Relief Plan.” The Senate had already approved the bill, so President Bush signs it into law pronto. Before the House vote, Barney Frank and Jim Moran have an interesting discussion on the House floor in which Frank says that the legislation would allow Treasury to buy bank equity directly rather than just buy up toxic assets, if it so chose. They’re very clearly trying to get this on the record. Nobody notices at the time except the Planet Money gang (their archives are useless so I can’t find their actual post/podcast on the topic).
Oct. 8, 2008: Treasury Secretary Hank Paulson says his first priority is “to inject capital into financial institutions”—news first broken first (or at least first interpreted correctly) right here on the Curious Capitalist. Buying up toxic assets is still on his list, but not in first place.
Oct. 14, 2008: Treasury announces that it’s putting $250 billion into nine big banks. Lots more capital injections (to smaller banks and some other financial institutions) follow.
Nov. 4, 2008: The WSJ reports that Treasury is likely to scrap the whole toxic-asset-buying plan.
Feb. 10, 2008: Newly confirmed Treasury Secretary Tim Geithner announces that he wants to spend hundreds of billions of dollars buying up troubled loans and mortgage securities.
March 23, 2009: Geithner outlines the basics of his Public-Private Investment Program, which would use $75-$100 billion in TARP money, guarantees from the Fed and FDIC, and private money to buy $500 billion to $1 trillion in what he called “legacy assets.”
July 8, 2009: Treasury finally launches a smallish Legacy Securities Public-Private Investment Program, committing up to $30 billion to it. The FDIC is still preparing its Legacy Loan Program.
What’s the lesson from this? Maybe it’s that we should remember that the Resolution Trust Corp., the inspiration for all this TARPing and PPIPing, simply hoovered up the assets of already-busted savings & loans that had been taken over by the FDIC. A similar approach was never going to work quite as well as a mechanism for saving troubled but still privately owned financial institutions, because they have to be persuaded to sell the assets.
Finally, for those puzzled by the extremely labored musical reference in the headline:
Vodpod videos no longer available.