What Was Wrong with TARP
Politicians had the option of choosing the “FDIC resolution” approach, which also injects capital into the banking system but only as part of liquidating insolvent institutions. This means that existing management and shareholders get wiped out.
Indeed, this is precisely what happened with Washington Mutual and IndyMac. And it was the approach that was used during the savings-and-loan bailout 20 years ago.
The Federal Deposit Insurance Corp. resolution approach should have been used with all insolvent institutions, regardless of how many lobbyists they employed or how much campaign cash they had funneled to Washington.
TARP was…a terrible piece of legislation because it meant that politicians, rather than market forces, determined which companies survived.
Full op-ed by Dan Mitchell of the Cato Institute here.
How many large, international banks have had gone through BK proceedings before WAMU, remembering that WAMU was basically a regional bank? Whose laws would apply?
Steve
Good piece by Dan Mitchell.
I read that Goldman Sachs took its TARP money and sent it overseas. Is that possible? If so, why is that possible?