Tarp Funds Bailout ... What Did It REALLY Do?
The Government bailout of distressed banks via the TARP Funds (Troubled Asset Relief Fund) has been a very controversial issue since enacted. There are basically two groups of people regarding this issue: those for the TARP funds and those against. Let's examine these two groups and their thinking.
Group For TARP funds bailout: They believe this is necessary to prevent a recession or a deepened recession. They do not see it as government interference with free market. They do not see it as against the constitution. They believe this will give banks the liquidity and capital to free up credit so lending can be easier again and this can spur more borrowing and spending.
Group Against TARP funds bailout: This group believes that the U.S. is already in a recession and any government intervention will only delay, prolong and make for a deeper recession or perhaps depression. Many in this group see the government interference with free market capitalism against the constitution (not to mention quasi socialistic policy). This group of thinking also doubts that this injection/investment/spending (whatever term you prefer) in U.S. financial institutions will provide for easier credit for consumers. This group (well, at least I can speak for myself) agrees that without the bailout the economy would have suffered a far worse state, however this state is inevitable and will only be worsened by attempts to interfere with the free market.
Furthermore, what I don't think many people realize (even those that are for the TARP funds bailout), is that the failure of the large financial institutions that have been bailed out and/or merged with another firm would have caused a run on the banks and perhaps a collapse of the U.S. financial system as a whole. I know that sounds scary, but it is what it is.
What has happened so far: Well, no matter which side of the issue you support we can only know which side is correct as it plays out. So far, credit has not loosened for consumers. Credit qualification has become more difficult. As far as real estate is concerned, the following changes have been noticed: Banks are less inclined to do loan modifications, they are approving less short sales as well as making them more difficult to approve. Banks are sitting on more real estate inventory. Why? Banks are now in a better financial position and are not as pressured to sell non-performing assets and cut loan modification deals as they were before. As for interest rates, they have dramatically increased . . . but we haven't seen anything yet.
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