Is TARP II dead?

The Treasury Department is quietly shelving plans to open a $1 billion pilot program to buy back toxic assets from banks. This is the centerpiece of Obama's plan to fix the horrible bank crisis and it has apparently died an ignoble death.

Why? Not even banks in serious trouble could stomach the government's terms for this assistance according to this New York Times article by Edmund Andrews:

Many banks have refused to sell their loans, in part because doing so would force them to mark down the value of those loans and book big losses. Even though the government was prepared to prop up prices by offering cheap financing to investors, the prices that banks were demanding have remained far higher than the prices that investors were willing to pay.

In a statement, the F.D.I.C. acknowledged that it had not been able to get banks interested in its so-called Legacy Loans Program. Scheduled to start later this month, the pilot program was aimed at selling off $1 billion in troubled home mortgages.

F.D.I.C. officials portrayed the change as a sign that banks were returning to health on their own.

"Banks have been able to raise capital without having to sell bad assets through the L.L.P., which reflects renewed investor confidence in our banking system," said Sheila C. Bair, chairwoman of the F.D.I.C.

But some analysts said the banks' reluctance to clean up their balance sheets meant they were merely postponing their day of reckoning. Indeed, some analysts said government policies had made it easier for banks to gloss over their bad loans.

Is it possible that capitalism - that much maligned system of economics - is actually playing a dominant role in "rescuing" the banks?

If banks can raise enormous amounts of capital on their own without any help from government, thus balancing their ledgers until the housing situation improves and they can unload those "toxic assets" at a reasonable price, will a Saul-like conversion overcome the Obama administration and force them to acknowledge they were wrong?

Don't bank on it.


The Treasury Department is quietly shelving plans to open a $1 billion pilot program to buy back toxic assets from banks. This is the centerpiece of Obama's plan to fix the horrible bank crisis and it has apparently died an ignoble death.

Why? Not even banks in serious trouble could stomach the government's terms for this assistance according to this New York Times article by Edmund Andrews:

Many banks have refused to sell their loans, in part because doing so would force them to mark down the value of those loans and book big losses. Even though the government was prepared to prop up prices by offering cheap financing to investors, the prices that banks were demanding have remained far higher than the prices that investors were willing to pay.

In a statement, the F.D.I.C. acknowledged that it had not been able to get banks interested in its so-called Legacy Loans Program. Scheduled to start later this month, the pilot program was aimed at selling off $1 billion in troubled home mortgages.

F.D.I.C. officials portrayed the change as a sign that banks were returning to health on their own.

"Banks have been able to raise capital without having to sell bad assets through the L.L.P., which reflects renewed investor confidence in our banking system," said Sheila C. Bair, chairwoman of the F.D.I.C.

But some analysts said the banks' reluctance to clean up their balance sheets meant they were merely postponing their day of reckoning. Indeed, some analysts said government policies had made it easier for banks to gloss over their bad loans.

Is it possible that capitalism - that much maligned system of economics - is actually playing a dominant role in "rescuing" the banks?

If banks can raise enormous amounts of capital on their own without any help from government, thus balancing their ledgers until the housing situation improves and they can unload those "toxic assets" at a reasonable price, will a Saul-like conversion overcome the Obama administration and force them to acknowledge they were wrong?

Don't bank on it.