GM, Chysler and UAW are not financial institutions and are not part of the financial system (AIG was by virtue of its derivatives / CDSs and insurance of some financial services or products). Financial institutions were under attacks / "bear raids" from the equity markets and subject to "run on the banks" (like Bear Sterns or later IndyMac, precipitated by Chuck Schumer). The biggest "run on the bank" occurred immediately after Lehman's bankruptcy, started with massive electronic withdrawals from Reserve Primary Fund and other MFs. That froze interbank fund loans (LIBOR spreads soared) and rendered illiquid and devalued commercial papers, and various companies' formerly liquid investments such as ARS. In other words, illiquidity and loss of paper value and ability to borrow money was affecting all companies and real economy very fast.
TARP fund provided liquidity and immediately removed the panic, stopped "runs on the bank", allowed the "netting" of accounts between counterparties and thus unfroze much of the commercial paper and ability to borrow (LIBOR spreads went down immediately after TARP passed) and allowed real economy to resume.
This was not about "bailing out" insolvent companies, it was about adding liquidity and unfreezing financial system, for which government / Fed is responsible and conduits are the banks. Insolvent banks and institutions (Countrywide, Bear Stearns, IndyMac, Lehman, WaMu, Wachovia etc.) and their investors were not "bailed out," their depositors (you and me) were. The solvent ones were helped out temporarily by TARP to absorb losers so the depositors wouldn't suffer (even when their shareholders did, as the case was with BoA and, to lesser extent, JPM). Fed and Treasury even made money on Lehman's bankruptcy.
... nor do they describe how it so definately would have collapsed had TARP not taken place.
See "Greece" and its chain reaction for a recent example. The difference, of course, is between companies which are conduits of financial system and sovereign financial system (which is a part of ECB / Euro financial system), but the mechanism and consequences are about the same.
Oh, and what's this "improvement in the economy" that people keep talking about?
Some people live in pre-9/11 (9/10) world, some people don't see the financial equivalent of such before Lehman's bankruptcy (9/14) and after. Again, see "Greece". If you didn't see the financial collapse unfolding after Lehman's bankruptcy, you could hardly see or foresee the ramp-up to it for about a year before it.
Sounds like some banks were grossly over-leveraged. Question - who was doing the electronic withdrawals? Was it a "panic" or an attack?
TARP fund provided liquidity and immediately removed the panic, stopped "runs on the bank", allowed the "netting" of accounts between counterparties and thus unfroze much of the commercial paper and ability to borrow (LIBOR spreads went down immediately after TARP passed) and allowed real economy to resume.
So basically, tax dollars were used to preserve a system (or at least several large entities within a system) that was supposedly collapsing due to bad lending practices and insufficient cash reserves? Is that what I'm gathering from this?
This was not about "bailing out" insolvent companies, it was about adding liquidity and unfreezing financial system, for which government / Fed is responsible and conduits are the banks. Insolvent banks and institutions (Countrywide, Bear Stearns, IndyMac, Lehman, WaMu, Wachovia etc.) and their investors were not "bailed out," their depositors (you and me) were. The solvent ones were helped out temporarily by TARP to absorb losers so the depositors wouldn't suffer (even when their shareholders did, as the case was with BoA and, to lesser extent, JPM). Fed and Treasury even made money on Lehman's bankruptcy.
Are the depositors not protected by FDIC? How much less would it have costed taxpayers to let these entities fail and simply insure depositors as written in law? Would failure of these entities resulted in overall economic collapse?
See "Greece" and its chain reaction for a recent example. The difference, of course, is between companies which are conduits of financial system and sovereign financial system (which is a part of ECB / Euro financial system), but the mechanism and consequences are about the same.
Some people live in pre-9/11 (9/10) world, some people don't see the financial equivalent of such before Lehman's bankruptcy (9/14) and after. Again, see "Greece". If you didn't see the financial collapse unfolding after Lehman's bankruptcy, you could hardly see or foresee the ramp-up to it for about a year before it.
Oh, Greece is coming here. They're just a couple of socialistic steps ahead of the US, that's all.
The way I see it, the TARP and subsequent bailouts just kicked the can a little farther down the road. Excessive leverage on the private side has been replaced by excessive borrowing on the government side. The result will be the same, only more intense since there is no backstop left. Unless we change directions and start unraveling government debt, I expect the same kind of reaction here that we are seeing in Greece, but there will be nobody left to bail out the US government.
BTW, it's hard to see a financial collapse coming as a result of the failure of Lehman, when ones' savings are intact at the credit union and ones' credit card still works at the local BP station. In other words, the connect between these macro events and the micro world isn't easily seen. The fact that few (if any) of us seemed to have endured any economic downside at that time perhaps lends to the idea that this wasn't necessary, and that the problem was manufactured. I don't believe that to be true, but I do wonder of the consequences of inaction might have been overstated.