Evan Newmark of WSJ is early on a theme that is likely to pick up steam over the coming months, if things don’t slip back into crisis mode: The TARP worked, Hank Paulson got it right.
I said it last October and I’m sticking by it. And now, there’s actual evidence to back me up. The TARP bailout worked. The Wall Street crisis is over.
At least, the market thinks so. At around 30, the VIX, the market’s volatility barometer, is trading at less than half the average level of last autumn. A share of Morgan Stanley is trading more than 400% higher than its October low.
And by this coming Sept. 15, the first anniversary of the fall of Lehman Brothers, five of the original eight TARP banks will have repaid the American taxpayer $50 billion plus interest.
That last point is actually remarkable. Even with all of the government intervention in various industries that we’ve seen since last September, we don’t think anyone would’ve expected banks to be in a position to be repaying TARP as fast as they have. Heck, even Bank of America is raising money from investors hand over first.
But while here in June, 2009 it might be time to praise Hank, history may yet render a more negative judgment. Our natoin’s balance sheet is now considerably weaker than it was before TARP and all of the interventions, and if the net result is that we’ve just transferred the crisis, then we haven’t done much good. And if we’ve replaced swift, sharp, shocked with long, slow, slog, then all we’ve done is the equivalent of a child spreading food around on their plate to make it look like they’ve eaten their vegetables*.
(*In our household, doing that was called ‘being a politician’)
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