TARP2- planned, but few details
With the stock market hitting record lows, the ‘stimulus’ package continues to make headlines. In an office tucked away in the Treasury Building, Timothy Geithner works on adding some specific strategies to a vague TARP2. The original announcement of the TARP2 specifics disappointed Wall Street and has had an adverse effect on the DOW for several sessions.
A Fox Business story reports that the Treasury Department will spend ‘up to $100 billion of the next phase of TARP to help ease tight credit for consumers and businesses.’
A portion of this will go towards foreclosure prevention and the larger portion will go towards ‘new bank capital injections.’
The TARP ‘stress-test’
More interesting information regarding TARP2 could be found in a column in Forbes.com today. Author Liz Moyer details how many major banks are stressing out currently anticipating the ‘stress-test’ that is a component of TARP2. The ‘stress-test’ measures the capital levels of banks. The test is meant to separate weak banks from strong banks.
Uncertainty about the details of the plan hit banks stocks hard. Major banks were down double-digits in trading today. The Treasury Secretary has been mute on details and Wall Street hates uncertainty.
The banks fortunate enough to pass the stress-test will get a capital injection from Treasury that will act like a bridge loan. The thinking is that the bank can use this capital as a temporary buffer until they can raise capital in the private markets.
With the failure of four more banks over the Presidents Day holiday, the regulators have their work cut out for them. They need to deal effectively with the troubled banks as soon as possible to restore confidence in the system and get the healthy banks back on a normal lending path again.
In the meantime, the other issue revolving around the TARP program is the need for accountability for the first round of expenditures. Citigroup and Bank of America are the only two banks that have furnished the government with a detailed accounting of how they used the funds. More on this in future posts.
February 25th, 2009 at 12:35 am
Hmm, very cognitive post.
Is this theme good unough for the Digg?
March 25th, 2009 at 3:58 am
[...] wrote on this blog that the stock market hates uncertainty. Conversely, it loves assurance. The Treasury Secretary’s announcement of the new bank rescue plan addresses the problem of toxic assets and how the [...]