Viewpoint: Guarantees More Useful Than Capital Infusions

By Karen Shaw Petrou


As the banking system goes from bad to worse, it is vital for the Obama team to take quick advantage of the once-ignored guarantee powers provided in the Troubled Asset Relief Program. This will work a lot faster than capital injections or a “bad bank.” Using the federal government as an insurer, not an asset acquirer, is a lot easier on the federal deficit — a critical factor as President Obama faces a phalanx of unpleasant choices. Choosing among them will require disciplined focus on the financial market’s recovery. Using Tarp insurance powers is not a panacea. Given the condition of the banking system, nothing is. However, the guarantee powers provided in Section 102 of the Emergency Economic Stabilization Act are the least worst of a series of decisions that will all have far-reaching, high-risk implications.