The feds have decided that TARP isn’t working and are hatching a much bigger, brand new bailout scheme.
According to WSJ, the new scheme may involve a gigantic, government-run bad bank:
The U.S. government, recognising that the banking crisis is larger than originally thought, is laying the groundwork for a second phase of its rescue attempt with plans to tackle the toxic assets gumming up the system.
Officials at the Treasury, Federal Reserve and Federal Deposit Insurance Corp., in consultation with the incoming Obama administration, are discussing a range of options, according to government and transition officials. One plan would create a government bank that would buy up bad assets. Another would standardize efforts to have the government guarantee banks’ assets against further losses.
The discussions, which have intensified in recent weeks, show how the rapid deterioration of bank assets is overwhelming the government’s rescue efforts. In addition to the real-estate investments that sparked the crisis, banks are now struggling with souring consumer debt from credit cards to car loans that are going bad as the economy falters.