Academic

EESA is a week old and already irrelevant--or at least the TARP part where the Treasury is supposed to be buying up bad mortgages and mortgage-backed securities.  As world markets continue to tumble, it's clear that EESA has had little positive impact on bank lending or market confidence.  We always knew that buying up bad bank assets was only an indirect way to pump up bank capital.  Now, it looks like more drastic measures are afoot.

Yesterday, central banks coordinated emergency interest rate cuts in an attempt to spur lending globally.  The Treasury is now considering 3 aggressive moves to get bank lending back on track: 

1.  injecting capital directly into banks by buying equity stakes  ;

2.  guaranteeing interbank debt; and

3.  extending deposit insurance to all bank deposits. 

The interbank debt guaranty is a UK proposal, where such a guaranty is being implemented.  The move to buy equity stakes raises strong doubts as to the efficacy of last week's plan to buy up mortgage assets.  Existing EESA authorization is likely broad enough to encompass purchase of bank equity stakes.  EESA's definition of "troubled assets"--authorized to be purchased under TARP--includes "any other financial instrument that the Secretary . . . determines . . . is necessary to promote financial stability."

Keep your fingers crossed.