Was the TARP a Ruse?

Now for the punch line: It was all an elaborate ruse, a coverup of the fact that Citigroup was busted.

By Barry Ritholtz - June 9th, 2009, 10:00AM

The rush to repay TARP monies gives us another opportunity to consider why the hell this absurd financial giveaway ever happened in the first place. A close inspection suggests some dishonesty on the part of the prior Treasury Secretary.

From its inception, the TARP never made much sense. Forcing banks that did not need money to accept government bailouts was simply irrational.

The basis for the TARP went through several differing rationales — it began as a recapitalization of the major money center banks, then came the explanation of removing toxic assets, then it moved to freeing up credit and making banks lend again.

Its was $700 billion dollar pile of money in search of a justification for its existence.

Most people still look at TARP the wrong way. When trying to discern what the true basis of it was, we eliminated what made no sense whatsoever, and what was left were a few strange ideas. When you eliminate the impossible, what’s left, no matter how improbable, becomes the best explanation.

What was that explanation? In Bailout Nation, we discuss the possibility that The TARP was all a giant ruse, a Hank Paulson engineered scam to cover up the simple fact that CitiGroup (C) was teetering on the brink of implosion. A loan just to Citi alone would have been problematic, went this line of brilliant reasoning, so instead, we gave money to all the big banks.

You can read the original article here