TARP was successful

[Sharky]

Re: TARP was successful

My understanding is that this describes the various Fed loan facilities, but not the purchase of MBS and agency debt under QE1, which is what I was referring to. Am I mistaken?

You're right; I should have been more clear. QE is a fundamentally different animal: the transactions are purchases and not loans (structured as an extension of the function of the FOMC, which regularly buys Treasury securities). However, the instruments purchased, such as MBS and agency debt, are still debt instruments. AFAIK, the Fed does not have legal authority to purchase capital assets, such as stocks.

The results of QE on the surface are similar to the loan-based programs: the bank's balance sheet stops hemorrhaging, and their excess reserves increase. However, a bank's ability to lend is also limited by their capital, which is not addressed this way.

Unlike loans through TAF or the discount window, purchasing toxic assets moves the risk of default onto the Fed's balance sheet. Central Banks can and do fail, and taking toxic assets onto their balance sheet is certainly one way for that to happen. The Fed's annual interest rebates to the Treasury will almost certainly be affected. I also wouldn't be surprised to see the Treasury inject some capital into the Fed at some stage.

[Slimprofits]

Re: TARP was successful

Not only is the Fed not talking about exit strategies, but no one around the world is anymore.

That talk died over the summer.

"Green shoots" is also a dead phrase.