Sunday, January 25, 2009

Tarp' 'n' Carp   [Mark Steyn]

NRO Financial wallah David Gitlitz partially dissents from my windy generalizations re TARP:

I’m totally with you except in your comments about TARP. This is a real misconception pervading the conservative punditocracy. To suggest that the first $350 billion was “completely wasted” ignores the realities of the situation. At the time TARP was enacted in October, the financial system was on the verge of outright collapse. We’re now in a severe recession, but to have done nothing at that time would have meant reenactment of the worst of the Great Depression. By injecting capital into the system, the TARP money relieved the worst of the risks confronting the system, unfreezing the credit markets. Yes, we can argue about whether this has resulted in propping up some ultimately unsustainable institutions. But the fact is, given the conditions at the time, there really was no choice.

 

I’m a conservative libertarian, inclined to be extremely skeptical of such large-scale government intervention. In this case, it’s important to recognize that a series of government errors were intimately involved in creating the conditions that led to the crisis – loose money, politically correct and misguided regulatory directives, and irresponsible lending behavior by government-affiliated institutions. So while such intervention is highly distasteful, the extent to which it is being compelled to deal with earlier government mistakes makes it somewhat more acceptable.   

I agree with the classically liberal view that the state has a legitimate role in maintaining the banking system. The question is how you do it: In London, Gordon Brown made the decision that no bank would be allowed to fail. Given British banks' global liabilities, that position is pretty much unsustainable. Secretary Paulson seems at some point in the fall to have modified his original thinking to bring it closer to Mr. Brown's. I think that's a mistake.

01/25 01:19 PMShare