The TARP is Now the CARP

"...and just like that - POOF! - he was gone"
- Kevin Spacey in "The Usual Suspects" talking about Kaiser Soze

The Troubled Asset Relief Program (TARP) as we know it is dead.   I would only half-jokingly suggest to the government marketing folks that the TARP should now be called the Consumer Asset Relief Program, or CARP.

Today Treasury Secretary Hank Paulson announced that the $700 billion dollar rescue plan will be targeted less to mortgage-related assets and more to consumer-related products.   Paulson said that while many banks still need support, he added:

"...the important markets for securitizing credit outside of the banking system also need support.  Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products. This market, which is vital for lending and growth, has for all practical purposes ground to a halt.  Addressing these two priorities will have powerful impacts on the overall financial system, the strength of our financial institutions and the availability of consumer credit.  Third, we continue to explore ways to reduce the risk of foreclosure."

And just like that - POOF! - the TARP evolves.  What was once sold as a rescue plan for troubled assets based primarily on mortgages and homes has become a much more broad attempt to ease consumer fears and increase consumer spending.

One of the underlying assumptions in marketing this plan was that the taxpayer would be getting something for her money.   If the government buys a distressed mortgage-related asset, the taxpayer may benefit as the value of that home moves back higher over time.   Thanks to a sharp-eyed Fox Business viewer correctly notes that under this revised plan, taxpayer money may now be used to buy depreciating assets, such as car and credit card loans.  While a car loan may have some inherent value in the interest payments (assuming the loan is paid back) the underlying value of the security - the car - only falls in value.   One of the arguments used by the government.

Rather oddly, Paulson also made the following comment:

"In the meantime, the GSEs now operate on stable footing.  They have strong government support backing both future capital and liquidity needs.  We have stabilized the GSEs and limited systemic risk, and our authorities provide us with additional flexibility to use as necessary to accomplish our objectives. "

The GSE's are Fannie Mae and Freddie Mac.  Both are posting record losses, quarter after quarter.   It is contradictory to suggest that these entities are on "stable footing" and in the next breath say they have "strong government support."  If they were indeed "stable" they would not need government support.

Scrabble junkies have no doubt noted you can change the letters of CARP around to some amusement.