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November 06, 2009

Fed Quietly put 4.3 Trillion at risk. [krakatoa]

We all knew about TARP, where over 700 Billion taxpayer dollars were used with little oversight to "prevent a Depression !!!"

Now the AP reports that the Treasury actually had access to 6 times that amount, with zero oversight.

At the peak of the financial crisis, taxpayer money guaranteed assets worth $4.3 trillion to help banks ride out the panic. The programs, which essentially provided insurance against losses, helped stabilize financial markets but put far more taxpayer dollars at risk than Congress intended, according to the Congressional Oversight Panel.

Many would say these actions saved the economy. There is an argument to be made there, and make no mistake, that debate will be forefront in next year's elections.

What isn't debatable is that there were many draconian steps taken, and many instances like this where the assets of a relative few were not only uniquely protected, but given a risk-free return on investment while the average investors had to take their lumps in the open market.

For example, when a major money market mutual fund threatened to "break the buck" last year, the Treasury Department temporarily guaranteed its assets to reassure investors that their money was safe. The actions spared investors the downside of their risk while allowing them to earn better returns than they would have in a normal deposit account.

In an ideal world, When the government steps in it can do great good, but only in very specific and targeted directions. And only so long as it is a transparent process that does not arbitrarily pick favorites at the expense of others.

We don't live in an ideal world like that, and we never will. The government simply should not be involved in the private sector, as the potential downside is absolutely disastrous.

In this case, the worst that could have happened was a stealth quadrupling of the Trillion-plus deficit we currently toil under.

Imagine what effect that would have on the U.S. and the World economies.


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posted by xgenghisx at 10:22 AM

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