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Did We Really Waste $78 Billion on TARP?

The problem is that since FASB 157 (the "mark to market" rule) went into effect, once an asset is sold at a fire sale price, everyone else must mark the asset down to the fire sale price. That triggers a lot of bad things, and the net effect of those bad things is to make a bank apparently insolvent.

So along comes the TARP. There was a lot of debate on how exactly the TARP should work, and frankly we're not clear yet how it really was exercised; there's plenty of room to criticize, and once we have better information I'm sure there will be a lot of evaluation with hindsight.

There's one thing of which we can be certain: if TARP was going to work, it must buy assets at more than their market value. We know that because if TARP bought the assets at just what the market would yield at the time, it would have no effect. If the assets would sell today at 25¢ on the dollar, and a bank was insolvent valuing those assets at 25¢ on the dollar, then buying them doesn't make the bank any less insolvent. The whole point of TARP was to make the Treasury the "buyer of last resort," in order to pick up "toxic assets" and improve the balance sheets of the banks that held them.

But that was ancient history in the modern news world, it's months ago, and who remembers from back then? Still, it's bad enough that you can't expect the legacy media to understand technology issues or report them correctly, but you would hope that business reporters would understand business. Somehow, the urge to report crises, catastrophes, and impending doom overwhelms the desire to think.