Monday, February 1, 2010

Did TARP Just Kick the Can Down the Road?

That seems to be the opinion of Neil Barofsky, the special inspector general of TARP.  According to a report released yesterday,

The government's bailout of financial institutions deemed "too big to fail" has created a risk that the United States could face a worse fiscal meltdown in the future, an independent watchdog assigned to review the program told Congress on Sunday.

The Troubled Assets Relief Program, known as TARP, has not addressed the problems that led to the last crisis and in some case those problems have festered and are a bigger threat than before, warned Neil Barofsky, the special inspector general at the Treasury Department.

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," Barofsky wrote.

Barofsky wrote the $700 billion financial bailout has encouraged more risk-taking because bank executives, who are still receiving massive bonuses, figure the government will come to the rescue the next time they steer their ships nearly aground.
No one should be surprised.

3 comments:

Clifford said...

Well ... wasn't the problem a solvency issue? Since part of the "fix" was to ease "mark to market" accounting
do the banks "earnings" have any meaning? Seems like kicking the can to me. Thanks.

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