As millions of American shoppers stormed malls and big box stores on Black Friday, one shop found itself strangely bereft of people: The Troubled Asset Relief Program's (TARP) Office of Financial Stability (OFS). Not for lack of banks seeking relief—there are plenty of those, as evidenced by the thousands of applications awaiting approval to receive TARP funding. Instead, the void is on the other side of the counter, at the unoccupied desks that should be filled with folks scrutinizing those applications.
Two months after TARP's inception, the OFS is still only half-staffed. And it may get worse before it gets better—head honcho Neel Kashkari anticipates efforts to get it fully staffed by Inauguration Day will be undermined by the administration change. Treasury Secretary Paulson and his crew are on the way out, and turnover throughout the Treasury and executive branch will only delay things more. Don't expect the relief application backlog to shrink before January 20, 2009—the amount of outstanding paperwork is gigantic. For an economy that's now officially been in recession since December 2007 according to The National Bureau of Economic Research, many believe expedience is more important than ever.
After all, TARP was created, in theory, to speed troubled institutions' recovery. (Recall Paulson's insistence on Capitol Hill months ago that all would be lost if something wasn't done immediately.) But in practice, TARP seems like more of a bottleneck— it may be well intentioned, but so far, the execution seems less than ideal. But, so it often goes when dealing with the feds.
Some folks think this is why Paulson decided to change TARP's mission from troubled asset repurchasing to direct capital infusions—they simply don't have the manpower to manage a portfolio of mortgage-backed securities and likely won't for some time. Capital infusions are much quicker and require less effort to implement.
It could also be argued the Treasury is being versatile and dynamic in changing plans for the TARP money, but decisiveness in government intervention is often far more important for market confidence.
Still, any attempt to reach firm conclusions about TARP or the economy at this point is little more than short-term guessing. Investors would be best suited to ignore pundits claiming failure or success right now. It's simply too early to say whether TARP and other measures have worked, just as it's too early to say how deep this recession will be in the US, and more importantly, globally. It will take time to fully know the final effects of governmental programs to bolster the financial system—likely many months, not weeks. Monday's market drop was scary, but don't be fooled by huge, one-day swings—lately, they're the norm. In the long run, fundamentals always win out over emotion.
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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.