Monday, October 10, 2011

TARP After Three Years: It Made Things Worse, Not Better

In short, markets in the five months after TARP’s adoption were much worse off than in the previous five months, and they performed worst of all precisely in the sector (banks) that TARP was supposed to “help.” These empirics are irrefutable. Those who claim TARP was good policy have to believe bank stocks would have plunged 90-95%, except for TARP capping the loss at 72%. Such a claim would be absurd.

Plain logic explains the empirics: investors are right to view political control of banks as bearish, not bullish. Just as this principle applied to U.S. banks amid TARP’s enactment in 2008-2009, it applies this year to European banks amid the EFSF, since they too are being compelled to accept politicized capital injections (and controls) from European states that refuse to fix their own failed finances or buttress their own shoddy bonds.

Posted via email from The Blue Pelican

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