Ok, so let me get this straight because I didn't go to a fancy school; the Federal Reserve wants us to believe that 19 of our largest banks need to raise only $74.6 billion in new capital while at the same time Geithner and the Treasury wants us to believe that we need to leverage $100 billion of TARP funds into upwards of $600 billion (or more) in tax-payer guarantees in order to remove toxic assets from the banks balance sheets as part of the PPIP. Am I missing something?
If the bank problem is only a $74.6 billion dollar problem, then why don't we just use the remaining $100 billion or so in TARP funds to recapitalize the banks and call it a day? Wouldn't this be a lot easier than putting the tax payer on the hook for an additional $600 billion in toxic asset guarantees? Oh, that's right, I forgot, we need to get credit moving, right?
Not only does this moderate assessment of our banking system call into question the need for the PPIP, but it also puts the credibility of the Federal Reserve into question should these major banks end up needing more than the estimated $74.6 billion.
Two things that jumped out at me from this report was, first, that Bank of America needs an additional $33.9 billion in capital. Wasn't CEO Ken Lewis quoted as saying as recently as a few weeks ago that Bank of America was going to repay the TARP in 2009?
And second, Citigroup is estimated to need only $5.5 billion in additional capital. Hmm, we'll see if this projection holds.