Why Didn't The Market Drop Further?

And in the ironic department:

"Community banking executives around the country responded with anger yesterday to the Bush administration's strategy of investing $250 billion in financial firms, saying they don't need the money, resent the intrusion and feel it's unfair to rescue companies from their own mistakes....

And in offices around the country, bankers simmered.

Peter Fitzgerald, chairman of Chain Bridge Bank in McLean, said he was "much chagrined that we will be punished for behaving prudently by now having to face reckless competitors who all of a sudden are subsidized by the federal government."

Holy God. And This:

"The government decided not to impose an explicit requirement that banks use their taxpayer dollars to increase lending. But regulators said they will watch banks closely. They also noted that banks have less reason to hoard money now that they can borrow more easily. Most important, however, they said, banks want to make money."

Of course not. Why have a plan that makes sense?

Also yesterday, the Federal Deposit Insurance Corp. said it will create, essentially, two new insurance programs.

"The basic insurance program still guarantees all bank deposits up to $250,000. A new supplemental program guarantees all deposits above $250,000 in accounts that don't pay interest. The program basically covers accounts used by small businesses.

Some European governments had already guaranteed deposits, creating a competitive advantage for banks in those countries. "

Now we know why they did this. Finally:

"Bair acknowledged that the new guarantees shelter banks from the immediate consequences of misbehavior because depositors and investors have no incentive to remove their money from an institution if they know that the government stands behind it.

But Bair said the government's first priority was to stabilize the industry.

"The risks of moral hazard were simply outweighed by the need to act and act dramatically and act quickly," Bair said."

I don't know whether to laugh or cry.

So, let's see:

1) Small banks don't want TARP and resent it.

2) We're not forcing TARP recipients to loan money out, thereby obviating it as a credit stimulus program.

3) We need to guarantee deposits because those socialist Europeans did it.

4) There are no immediate disincentives to reckless behavior.

5) We given up on any notion of implicit or explicit guarantees.

Your government's dollars at work.

TARP is an awful mess.