This month, the stock market dropped precipitously after the announcement that the emphasis of the Troubled Assets Relief Program would be shifted to direct equity infusions into banks and away from buying their "toxic" mortgages. This change was especially confounding because, when he first proposed TARP, Treasury Secretary Henry Paulson suggested that the financial crisis would not end until the mortgage market stabilized. The favorable reaction to the plan to backstop Citigroup's mortgage portfolio, as well as the government's announcement yesterday that it will buy additional mortgage-backed securities, is powerful evidence that Paulson had it right the first time.
The market wants to understand the dimensions of the losses that banks face from their mortgage holdings. We believe that using a significant portion of TARP's remaining assets for its original purpose -- buying distressed mortgage assets -- is the fastest and most reliable way to achieve that. read more
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