When the Treasury Department first unveiled its plan to buy troubled assets from banks in September, the move was heralded by self-styled experts as a potential saviour for fast-sinking banks and financial firms. Critics were characterised as ideological indignants who didn’t understand the urgency of ridding bank balance sheets of toxic assets. Now the Treasury has admitted the critics were right all along.
Congressional oppoenents of the the bailout were more or less mocked for proposing alternate plans. More than once supporters of the Troubled Assets Relief Program emphasised that banks weren’t lending to each other because of the toxic assets on their balance sheet. Critics argued that there was no good way to price the assets, that the Treasury would probably overpay in an effort to secretly recapitalize banks and that it would be better to openly recapitalize them if that’s what was necessary. And now the Treasury is admitting it was wrong, the critics were right and the TARP won’t be used.
“Treasury has no current plans to purchase assets, people familiar with the matter said, and is instead focused on investing directly in firms that provide financing to the broader economy,” the Wall Street Journal reports this morning.
That news will come as a relief to critics, including Clusterstock, who argued all along that the plan to buy troubled assets was badly flawed.
But it also comes as a warning about trusting the so-called experts and the dangers of the fear and loathing tactics they employed. Critics were lambasted as irresponsible, and the experts in the government and media warned that a depression was on the way unless they the goverment bought toxic assets. But that doctrinaire approach was dead wrong, and had no basis either in economic theory or history. The criticism of the TARP, far from being irresponsible, was exactly right and may have even convinced the government to abandon it. That’s a market for ideas in action.
Don’t waste too much time waiting for an apology to the dissenters. The TARP supporters have already forgotten how wrong they were. The critics will just have to be satisified with the knowledge that they were right.
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