Last week, the Congressional Oversight Panel charged with monitoring the Troubled Asset Relief Program (TARP) released a report stating that toxic assets still pose a threat to the economy that Treasury’s approach to the banks has not fully mitigated. “If the economy worsens, especially if unemployment remains elevated or if the commercial real estate market collapses, then defaults will rise and the troubled assets will continue to deteriorate in value…The financial system will remain vulnerable to the crisis conditions that TARP was meant to fix,” the report said.
Yesterday, Bloomberg News reported that more than 150 banks hold a level of toxic loans that “can wipe out a bank’s equity and threaten its survival.” The number of banks holding this many toxic assets has doubled this year.
One of the most outspoken critics of both Treasury and the Federal Reserve’s bailout programs has been Rep. Alan Grayson (D-FL). Yesterday, The Wonk Room spoke with Grayson and asked for his reaction to the persistence of the toxic asset problem. After introducing us to his friend — a cardboard cutout of President Obama — Grayson had this to say:
[T]he problem is not going to go away anytime soon because a lot of households are underwater. They owe more than they own, so not only is their collateral impaired, meaning their house, the value of a small business and so on, but their value as borrowers is impaired. [...] Now, does that mean we need bailouts? I say no. I voted against every bailout. I’m going to continue to vote against bailouts because I don’t believe taxpayer money belongs in the pockets of private interests. The way we should have done this is we should have taken these assets and liquidated them, we should have taken the management that was in charge of these financial institutions that failed and we should have liquidated them as well.
Transcript: Read more