PIPPsqueak

The totally-awesome government plan to restore the financial system and save all of our financial lives - the PIPP - will come limping out of the gates apparently.  This can be construed as good news in that things aren't so bad that such a program is needed or it can be construed a little more pessimistically in that we still have our problems but that the private sector has determined that a government cure is no cure at all and they would rather go through a private sector detox than a government three step program.   All of this brings us back to the TARP and the Fed's modern interpretation of the "Bagehot" principle.  Paulson's plan to forcibly inject capital into the banks, while disconcerting to free marketeers, was in the best tradition of fighting panics, ala George Courtelyou .   Where things went wrong was when Congress (read Barney Frank) took the TARP program as an excuse to start micro-managing the banking system.  Note that is when banks started clamoring to repay the TARP.  Further, the Fed's opening of the discount window to investment banks stabilized the banking system with short term liquidity, the likes of which made the toxic assets easy to hold until they became not just not-toxic, but attractive, to hold, which many are today.  And to give the devil his due, Geithner's plan to essentially force the banks to raise capital using the "stress tests" as a pretext was a further confidence booster.   With these three moves - the original TARP injection, the opening of the discount window, and the stress test charade which gave the banks opportunity to raise capital free of taint - the government did what governments should in these situations.  Everything beyond that has been rightly rejected as excessive meddling in the private sector as we are seeing now that the worst has passed.