They want to keep the puppet strings
Today, Treasury Secretary Tim Geithner asked Congress to extend TARP another 10 months to October, 2010. Around here, we’re asking: What’s behind this? Is Geithner a. just being cautious b. extraordinarily nervous about what might be coming c. an enabler or d. simply drunk with power?
You can probably make a case for all four. Read Geithner’s letter to Congress here.
Geithner says use of the TARP funds next year will be limited to three things — dealing with foreclosures, providing capital to small busines and propping up credit markets to increase lending. More:
Beyond these limited new commitments, we will not use remaining EESA funds unless necessary to respond to an immediate and substantial threat to the economy stemming from financial instability. As a nation we must maintain capacity to respond to such a threat. Banks are still experiencing significant new credit losses, and the pace of bank failures, which tend to lag economic cycles, remains elevated.
At the same time, many of the Federal Reserve and FDIC programs that have complemented TARP investments are ending. This creates a financial environment in which new shocks could have an outsized effect – especially if an adequate financial stability reserve is not maintained.
So there are reasons a. and b. Geithner also seems to believe the government has done a bang-up job with TARP and its other programs. In other words, the economy needs the government to keep doing what it’s doing:
History suggests that exiting prematurely from policies designed to contain a financial crisis can significantly prolong an economic downturn. We must not waver in our resolve to ensure the stability of the financial system and to support the nascent recovery that the Administration and the Congress have worked so hard to achieve.
But a report out today from the TARP oversight panel headed by Elizabeth Warren says this:
… the panel wrote, the bailout failed to stem problems like lackluster lending and growing foreclosures that still plague the economy.
It even suggests that TARP may have done harm by making some banks and firms, considered too big for regulators to allow them to fail, even bigger and by creating a new expectation that big banks will always be saved.
“Implicit government guarantees pose the most difficult long-term problem to emerge from the crisis,” the panel wrote.
It’s called enabling. Answer c.
Finally, once you hand over the remote control, try getting it back. The Treasury and the Fed have taken the power given to them by Congress in a time of crisis and run with it. They’ll most likely run with it as far as they can. Think about it. When Fed Chairman Ben Bernanke testified to Congress last week, he admitted the Fed had made mistakes. “We didn’t do the worst job, either,” he said. But when members of Congress suggested the Fed be audited or that it should be less secret or perhaps its authority more narrow in focus, Bernanke said no way.
Essentially, you’re going to have to pry the puppet strings from his cold, lifeless fingers.
On that note, some comic relief from Stephen Colbert:
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