[rhino369]

It's not just that they boosted the credibility of the banks.

The "toxic assets" that TARP bought weren't as bad as people feared. But the market wasn't buying them because nobody knew their true value. Everyone lost faith in the ratings agencies so it was chaos.

Small banks benefited from this as well. It stabilized the market for mortgage securities, which small banks had large exposure to. It solved the liquidity crunch so the banks could stay open.

If the big banks fail, it would take the small ones with them. It would also take a lot of good businesses with it. The whole economy runs on lines of credit.

[adventured]

The market would have bought them, at one point or another, exactly because there was value there (either at the time or eventually that realization would have been made, just as it had been so many times throughout US history that didn't require a program like TARP).

That process would have bankrupted nearly every major bank. Buying the toxic assets was an extreme bailout for the banks, that were carrying trillions in liabilities that suddenly went under. Most of the majors were completely insolvent.

[autokad]

I'm sorry but you are wrong. The market wasn't buying anything, period. Trying to fall back on the 'as it had been so many times throughout US History' is also wrong, as History, specifically the great depression, has shown us: no. At that time, there were no willing buyers (of toxic assets or banks otherwise), and if things progressed there would be no willing buyers.

Tarp both directly and indirectly included the autos. Directly, because the auto bailout was funded under tarp, and indirectly because the way cars are sold - through loans, was about to be a broken process. if you remember, companies were no longer processing orders of auto parts companies unless they were paying in cash, for fear they might go under. The same situation happened in the banks. if the autos had gone, just that alone would have added another 2 million to unemployment in a month. Ford, the healthiest of the autos would have gone under too - as the companies that made GM and Christler's parts also made theirs. This alone would have destroyed the world economy for decades, let alone the financials all going kaput all at once.

there were aspects of TARP that could have been implemented better, such as stipulations on c suite bonnuses, but overall TARP was needed or else we would be in a really bad place right now.

[adventured]

No, I'm correct. The market always buys value, and historically always has. The sole question is price.

There were in fact willing buyers after the great depression. You're admitting I'm right by pointing out the great depression: all of those assets were eventually purchased by the market, that's a tremendous example of what I'm talking about. The only thing you can say is: it took too long, but that's merely an opinion. Besides, the government not only caused the great depression, but then made it much worse. I'd argue the market would have corrected dramatically faster had the government & Fed not screwed things up so massively.

The problem in this case was the market price would have bankrupted the banks that were sitting on worthless loans. And the price deterioration in the housing market from the sinking toxic assets would have wiped out trillions in wealth for the middle class.

[polarix]

You may have ended your counterfactual story too soon. It's hardly a triviality that it would have destroyed trillions of perceived middle class wealth. Such a perceptual shift changes the characteristics of consumer demand in a way that would have massive worldwide impact. Not only would American businesses have suffered (many fatally), and dramatically reduced investment, but American debt-financed consumer demand is one of our biggest exports, and would have precipitated even more disastrous global readjustments. This is the kind of thing that causes loss of life (through revolutions and wars, if not simple starvation) in poorer countries and regions.

[tptacek]

Something market something something irrational longer something solvent.

[syllogism]

> No, I'm correct. The market always buys value, and historically always has. The sole question is price.

https://en.wikipedia.org/wiki/Keynesian_beauty_contest

https://en.wikipedia.org/wiki/Pluralistic_ignorance

The market can't buy value if everyone believes everyone else believes that the value isn't there. (Actually you can go any number of layers of belief; what you need is shared knowledge, in the sense logicians use the term.)

Everyone in the market is trying to guess what everyone else in the market will do, who are also trying to guess what the market is doing. Once you crash, you don't just need sentiment-of-value to improve, or even sentiment-of-sentiment-of-value. You need sentiment-of-sentiment-of-sentiment...etc.

So, you can get grid-lock. Which is why you need the government to step in.

[bko]

I think the Keynesian beauty contest is less relevant for structured products. If others don't share the same view of the underlying collateral you may not be able to sell them in the near future. But if the collateral performance meets your more optimistic viewpoint, you will be compensated and eventually the bond will be paid off. The securities aren't like equities with some some arbitrary value associated with them that can only be captured through sale to another party (excluding dividends, buyouts, etc).

There were probably a lot of structural issues that prevented many of the large players to purchases these assets though (mostly liquidity). This is probably the justification the Federal Reserve used to purchase said assets.