Coronavirus News Asia

How many TARPs does it take to cover a crisis?

Trillions of dollars of actual and promised spending by central banks and governments stabilized global equity and credit markets today, but only just. Credit risk stabilized at extremely wide levels and equity markets gained about 2% after yesterday’s 5% decline. The only risk market with substantial gains is Italian government debt and other European peripherals, which jumped after the European Central Bak promised 750 billion euros in additional bond buying.

Never in the course of financial events have so few spent so much for so many and with so little effect. The US Federal Reserve offered $500 billion in temporary help for the repurchase market (short-term lending against Treasury and other high-quality securities), then another $500 billion of permanent purchases of Treasuries, and then at least another $130 billion in swap lines to foreign central banks (which help foreign banks support the purchase of US assets). US President Donald Trump promised a $1.3 billion economic support package in place of the mere $850 billion that Treasury Secretary Steve Mnuchin proposed Monday. The ECB, the Bank of Japan and the Bank of England together cobbled together another trillion.

Compared to the $700 billion that the TARP (Troubled Asset Relief Program) put into the banking system after Lehman Brothers’ failure in September 2008, the scale of government and central bank support is Brobdingnagian,  but the results have been disappointingly Lilliputian.

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