Geithner: TARP to End Soon

Treasury Secretary Timothy Geithner told Congress it was the administration’s intent to “end the $700 billion financial bailout program soon.”

The Associated Press quoted Geithner as suggesting that the government was “close to the point at which we can wind down this program” and end it. The “substantial resources” left in the TARP fund would be then applied towards the national debt.

But does it really matter when TARP ends?

The government, first under Bush/Paulson, now under Obama/Geithner, has set a horrific precedent. Banks, Investment houses and speculators are well aware that the Federal government stands ready to intervene when the screw ups are large enough.

That was one of the lessons of the Bailouts of Bear Stearns and Lehman Brothers. Don’t just mess up, bankers learned . . . but make sure your cock ups are so enormous as to threaten the entire economic system. The perverse moral hazard of the 2008 Bailouts is that it is very likely to encourage greater risk taking in the future, once the current era fades into distant memory.

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At the same time, the Britain and the European Union governmentsseemed to find a compromise on a new financial oversight framework. A system made of three new authorities to supervise banking, insurance, and securities will be organized.

The EU will also create a “Systemic Risk Board” to look for major threats to the economy, including major bank problems and the existence of asset bubbles.

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Sources:
Geithner Expects Bailout Program to End Soon
Associated Press, December 2, 2009
http://www.nytimes.com/2009/12/03/business/economy/03derivatives.html

Compromise With Britain Paves Way to Finance Rules in Europe
STEPHEN CASTLE
NYT, December 2, 2009
http://www.nytimes.com/2009/12/03/business/global/03eubank.html

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