The troubled asset relief programme is troubled.
Asset relief is a harder thing to accomplish than it first seemed. The TARP’s remit has consequently broadened considerably over its so-far short lifespan. The onus of the scheme has now shifted away from liquidity support and asset pricing and onto recapitalisation.
Recapitalisation is in fact the only thing TARP has done so far. The capital purchase program provided $125bn to nine banks on the 28th of October. And it extended $40bn to AIG yesterday. (Aside: that will take the TARP over its third “tranche” level of $150bn, requiring a fresh report to congress by tomorrow.)
Meaning that the TARP has spent a grand total of $165bn so far – according to its website.
Peanuts.
The Fed is where the real bailouts happen.
The FRBNY alone is providing $150.3bn to AIG. An effective recapitalisation by a hefty loan ($60bn), two ‘smaller’ asset relief programmes ($30bn and $22.5bn) and $37.8bn in liquidity support.
Then there’s Bear Stearns ($29bn)
And MMIF ($540bn)
And CPFF ($243bn)
And the TAF, the PDCF…
The problem with the TARP is twofold. On the one hand, there’s the cited thorny issue of pricing assets. The TARP has not bought assets because it is reluctant to do so without an adequate valuation method (though, it seems, when it comes to AIG’s CDOs, the FRBNY has no such reticence). And on the the other hand, there’s the availability of cash for the TARP in the first place.
Because, whereas the Fed can magic money from thin air, and quantitatively ease its way out, of ever-expanding bailout facilities, the Treasury has a more constrained balance sheet. Fannie and Freddie are sitting there already weighing heavy.
To boot, funding for the TARP is statutorily committed to come from Treasury issuance. Which in the current market, is a big ask.