Original TARP Plan Enacted....In Ireland

Author:
Greg Michaels
Updated:
Jan 14, 2019
Original:
Sep 16, 2009

It took a bit longer than expected, and in another country, but the world may now get a glimpse at the wisdom of direct government purchases of toxic assets. Faced with the near Icelandic state of its banks, the Irish government is planning on going long the real estate market to the tune of €54bn to help get credit flowing again. The newly created National Asset Management Agency will receive a 30% discount on the €77bn loan portfolio coming off bank balance sheets and then call for nationwide prayer to help property prices rise the 10% over 10 years required for the government to break even. If there was ever a time for the luck of the Irish to come through, this is it.
Ireland to Pay EU54 Billion for Banks' Risky Loans [Bloomberg]

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The Federal Reserve has this new paper out about TARP that does a bit of highly suggestive eyebrow raising about some banks that shall remain nameless. They start from the awkward fact that TARP wanted everything in one bag but didn't want the bag to be heavy, or as they put it: The conflicted nature of the TARP objectives reflects the tension between different approaches to the financial crisis. While recapitalization was directed at returning banks to a position of financial stability, these banks were also expected to provide macro-stabilization by converting their new cash into risky loans. TARP was a use of public tax-payer funds and some public opinion argued that the funds should be used to make loans, so that the benefit of the funds would be passed through directly to consumers and businesses. So you might reasonably ask: were TARP funds locked in the vault to return the recipient banks to financial health, or blown on loans to risky ventures, or other? Well, here is Figure 1 (aggregate commercial and industrial loans from commercial banks in the U.S.): So ... not loaned then. But that's not important! The authors are actually looking not primarily at aggregate amounts of loans but at riskiness of loans and here's what they get:

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