TARP funds is fictional currency that never existed (virtual money).

It was used to prop up the Banks balance sheet so they could maintain the regulatory reserve requirement. At a ten percent reserve requirement, the bank had somewhere around 450 billion dollars of loans exposure which many may have defaulted.

The current policy with banks “appears” that they are limiting the amount of assets they seize when a loan is in default. It looks better on there balance sheets to write off a default payment then to write off a entire loan and hold the physical asset on there books. BoF knows the Fed can prop up any bank at any time with a few stokes on the keyboard so they are not concerned about there reserve requirement anymore. They also know that the fed will continue to buy troubled assets to get them off the banks balance sheets.

“Quantitative easing is sometimes described as ‘printing money’, although the central bank actually creates it electronically ‘out of nothing’ by increasing the credit in its own bank account”
See: http://en.wikipedia.org/wiki/Quantitative_easing

The question I have is how this all ends?

The Fed and Congress created this problem, how it all ends will be another chapter in american history.

- TerryC.

Related Posts:

• Fed should start to charge the bank reserves to push serious lending.
• The time to rein in the banks has come and gone.
• THE GREAT BULL MARKET
• The dollar is a claim on the wealth producing capacity of America.
• Bernanke 2005 vs 2009: “There’s No Housing Bubble to Go Bust”

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