Would America have collapsed without TARP?

July 16, 2009

A fascinating exchange just occur ed during Hank Paulson’s testimony on Capitol Hill about the Bank of America-Merrill Lynch merger. (Paulson admitted in his testimony that he more or less threatened Ken Lewis with dismissal if Lewis scuttled the deal late last year.)

Rep. Kanjorski, a Pennsylvania Democrat, pushed Paulson hard to clearly state what would have happened to the nation’s financial system and to America without the TARP. Kanjorski related a incident where another Treasury official had told that a “return to the 16th century” was an optimistic scenario.

Paulson wouldn’t take the bait, though he did say that unemployment would be far worse than the numbers we are talking about today. And he also related a cryptic conversation with German officials where it seemed that they were hinting Germany would dissolve back into East and West Germany. Or something like that. ( Paulson and Bernanke did brief congressional leaders last fall and told them the financial system would shut down.)

Oh, and another Dem on the panel, Stephen Lynch of Massachusetts, said Paulson knew all along that TARP would involve capital injections rather than the purchase of toxic assets. Basically he called Paulson a liar.

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