Interesting piece by former FDIC head Bill Isaac on the bank bailout:
In truth, customers of money market funds had already been calmed when Treasury issued a 100% guarantee of their money – before TARP was enacted. The FDIC had the authority to reassure depositors under existing law, as was in fact done shortly after the TARP was enacted.
Two weeks after the TARP was enacted, Paulson abandoned the toxic asset plan and announced that the money would instead be used to shore up the capital of banks. I had argued against the TARP in part because I believed capital infusions would support much more new lending than would the purchase of toxic assets. Moreover, I believed capital infusions would be far less costly to taxpayers.
However, the TARP was not needed for capital infusions because the FDIC had existing authority to provide capital to banks. I preferred strongly that the FDIC manage a capital infusion program rather than the highly politicized program Treasury implemented.
Treasury made two egregious mistakes on the capital program and many smaller ones. The first blunder was to order nine large financial institutions – CitiGroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Bank of America, Bank of New York/Mellon, Merrill Lynch, Morgan Stanley and State Street – to accept $125 billion of taxpayer money that most of them did not need or want.
To some extent he adopts the John Taylor theory that it was the chaotic nature of the TARP roll-out that destabilized markets. Yet he also says he was in favor of capital injections.