[Wyatt's Torch]

Complete collapse of the credit system for years as banks unwound billions of derivatives and took massive losses. Runs on liquidity as everyone pulled out cash. Thousands of banks go under. Bigger collapse in asset prices unable to be paid back as they are now under water. Even more businesses shut down and tens of millions lose their jobs. It would have been what happened but x 1000. TARP allowed the Fed to step in as the lender of last resort and backstop the losses thereby securing the “full faith and credit” of the financial system.

Yes it “distorted” the market and didn’t “allow it to clear” but the impact of that would have been disastrous. TARP did what it was supposed to do and stopped the freefall into many years long credit collapse.

[expat_panama]

What I'm remembering was a commission audit requirement that came out of the old S&L crisis. The intent was to push financial institutions away from listing purchase prices and instead go for up-to-date market prices. Unfortunately what happened was it brought about a panic sale where funders were being forced to balance books by dumping say, T-bills at big losses simply because that particular week there were no buyers on tap. The panic sales were propagating in to a mass hysteria --and it was all per gov't regs in force at the time.

[Pelham]

“Complete collapse of the credit system for years as banks unwound billions of derivatives and took massive losses. Runs on liquidity as everyone pulled out cash. Thousands of banks go under.. “

That’s the scenario that I was thinking of as well. Allowing an asset collapse to go forward would have meant a near replay of the 1930s. The main difference being that FDIC would at least protect average Americans from being completely wiped out as they were in the ‘30s.

But while necessary TARP was implemented without sufficient oversight and protection for the taxpayer. I think there is evidence that TARP was abused for the benefit of the well connected.