TARP did nothing to loosen credit

Obviously, though, banks have not responded to direct liquidity injections as Henry Paulson and Tim Geithner predicted when Congress shelled out the money. Most of them now want to give the money back — now that they’ve become profitable again by watching their lending habits. Had Treasury stuck to the plan that Congress actually authorized, which was a mechanism to restore value to the toxic assets, we may have already fixed the actual problem plaguing the economy without wasting almost a trillion dollars on nationalization of private industry.

But then again, that wouldn’t have allowed those in charge to follow their pet principle of never wasting a good crisis, would it?

This illustrates the fatal problem with central planning and Keynesian stimulus plans. The economy is so enormous, and complicated, that government controls and targeted spending programs almost never produce the desired effect. It’s nearly impossible to calculate what the true effect of any government intervention would be, especially when billions of dollars are involved. Keynes formulated his theories in an economy dominated by large-scale industrial capital and relatively slow, simple financial markets. Now everything happens at the speed of light, and a great deal of wealth is virtual, and highly fluid. Government attempts to mold the Information Age economy are like a big, clumsy ogre trying to make a sculpture out of quicksand – it never works out the way the ogre wants it to, which makes him frustrated… which makes him squeeze harder.

Every one of these hare-brained collectivist economic strategies produces a hundred unintended consequences, which require a hundred even more coercive, complex laws to correct. I’m not surprised banks are not eager to extend more credit right now. They’re smart to grab that tasty taxpayer bailout cash and sit tight, stabilizing their financial positions and looking for low-risk ways to make modest, dependable profits. Who would they extend credit to? The same taxpaying chumps who are about to get slapped with the bill for all these bailouts? Why would banks be eager to loan money to customers who are about to be crushed by trillion-dollar liabilities? Especially when they know the economy is controlled by an activist government that feels no Constitutional restraints on its power, and has already acted to abrogate contracts with favored constituencies when they can’t repay their loans. To say it with brutal simplicity, the upper-income citizens who might be interested in investment capital are about to see a gigantic amount of their wealth confiscated by the government, and loaning money to lower-income citizens is a sucker bet, because Obama will make those accounts receivable disappear if his constituents get in trouble and scream loudly enough.

Every one of those billions of TARP dollars is probably worth about as much as it’s ever going to be worth, for the foreseeable future. They aren’t seeds that banks can plant to generate future wealth and capital. Those dollars were extracted from the free market – more precisely, the free market of the future – and re-allocated according to political imperatives, which compromises their value by definition. Forcing a dollar to go somewhere it doesn’t want to go always makes it shrink. Of course, besides using that TARP money for safe investments with very little stimulus value to the economy, bankers will probably be skimming some off the top for bonuses and executive luxuries – something far more likely to occur when your revenue stream is secured through political efforts, instead of trying to please a free-market customer base and stockholders.

Doctor Zero on April 16, 2009 at 5:46 PM