"The goal of the TARP was primarily to avert financial meltdown and chaos in the credit markets, not to spur massive increases in bank lending"

James Suroweicki with two good posts:

"Tyler Cowen, I assume, opposes any bailout. But he articulated perhaps the best argument for it a couple weeks ago in The New York Times, when he wrote:

Rebuilding confidence might seem a small matter, but it is not. The truth is this: America is a wonderful and magnanimous nation when it is a winner, but Americans are not used to losing and Americans are not used to panic.

Often we respond to negative events badly, so we need to be especially careful when we are in a losing or risky position.

Very bad events can cause a panic among the citizenry or its leaders, which translates into subsequent bad decisions.

It’s important that policymakers and pundits not fool themselves. Americans are not prepared for G.M. and Ford to go bankrupt. At this point, their failures would be “very bad events,” and they would cause people to panic. If you’re ideologically opposed to the very idea of bailing out private corporations, then opposing this bailout makes sense. But if you’re making a risk-reward calculation, then it doesn’t."

I agree, and consider this an argument based on Politics and Political Economy. It's a good one. Nevertheless, I have articulated conditions for this loan.

Another post:

"Testifying before Congress on Friday, Assistant Treasury Secretary Neel Kashkari, the man in charge of the TARP, said of the $700 billion plan: "It's not a stimulus, it's not an economic growth plan. It's an economic stabilization plan." Unlike Felix Salmon, I think Kashkari's distinction between stabilization and stimulus is actually a useful, and accurate, one. The goal of the TARP was primarily to avert financial meltdown and chaos in the credit markets, not to spur massive increases in bank lending. The hope was, and is, that doing the first would help with the second, but the real problem that had to be dealt with was bolstering the markets' confidence in the health of the country's major financial institutions. (As I've said before, I'm the only person who still thinks that the original TARP plan to buy toxic assets would have helped do this, if it had been done in combination with recapitalization.)

But in arguing that the goal of the TARP is stabilization rather than stimulus, Kashakari actually inadvertently helped explain why it would be reasonable to use TARP funds to bail out G.M., as Democrats advocate. The Bush administration opposes doing so, because, it argues, Congress intended the bill solely "deal with what is an ongoing credit crisis in our financial sector." If the administration thinks that a G.M. bankruptcy would not significantly exacerbate the credit crisis, it's simply not paying attention to what people in the equity and credit markets are saying. In fact, from the point of view of stabilizing the markets and reducing people's risk aversion, giving G.M. and Ford $50 billion is probably the best investment the government could make right now."

So, why don't I support TARP, even as described? Because I believe that a credit stimulus plan would have been a better use of the money and, quite frankly, be a better economic stabilization plan. The Swedish Plan would have been even better, for reasons I've argued elsewhere. So, one can agree that TARP has had some success, and yet still be an awful plan. In the case of the Big 3, I want the conditions earlier enunciated to be met, or no deal. I believe that Suroweicki has a much lower standard of acceptance than I do.