Further Thoughts On TARP

Should it now be called “CARP”? (Consumer replaces Troubled, this suggestion from Brian Sullivan of Fox Business News).

Following Dan’s comments this morning on the news of official changes to TARP, I’ve got a few comments collected from various panels, conversations and questions at the conference I’m attending.

-Why is TARP requiring a private investment before a company qualifies? Well, it’s a way to validate the public investment, one person said. Having a third party investment thesis validates the business’s existence and worthiness of government money, essentially. “That was even true prior to WaMu,” one person said.

-Isn’t there a chicken & egg issue there? Possibly. It’s also possible the validation occurs simultaneously. Either way, PE may be the one remaining pool of capital that is able to make that validation.

-There’s no need for the original TARP Plan to buy up troubled assets. The banks are essentially supporting the bad loans with their direct investments, which support deposits, which back the bad assets. The banks are the best holders of these assets, so the government is backing them, but in a better way.

-What TARP is doing now echoes what the Swedish government did around 10 years ago when the Swiss banking system had severe problems. There’s been an opportunity for PE to monetize those stakes as they government exits. The challenge is how to do a Swedish-type of rescue in a system with 1000 times more banks.