The less optimistic view of Treasury’s handling of the crisis

By Edward Harrison of Credit Writedowns

The Obama Administration is captured. To understand why it has acted as it has, one doesn’t have to take the view that its efforts to save the baking industry were a deliberate attempt to line bankers’ pockets by transferring money from taxpayers to the banking industry. One need merely read the last post I wrote on this topic.

In their wildly optimistic view, the banking industry is solvent and always has been. All that was needed to ‘solve’ than banking crisis was a lot of liquidity, government backstops and, most importantly, time. This blinkered view sees a looting of taxpayer money to bailout the banking industry as necessary to save banks whose credit is the ‘lifeblood of our economy.’

They are wrong. The banks did not need to bailed out. The banking industry industry needed to made solvent again. There is a big difference between those two sentences: banks versus banking industry and liquidity versus solvency that goes to the core of the captured and politically damaging world view we have seen on display by the Obama Administration.