Thursday, October 23, 2008

The World According to TARP

Treasury's toxic asset recovery program went through its first $250 billion and requested Congress provide the next $100 billion. Hank Paulson has more financial institutions to save. With Wall Street and commercial banks on better footing, next up are hedge funds and insurance companies.

Hank did say the TARP would buy credit default swaps in his Congressional testimony. Did Treasury take on any covered risk for failed Lehman debt? They rolled up at a lower than expected $5.2 billion. Washington Mutual priced their debt today. The next step is for CDS holders to make good on their obligations. Will Hank be there with some of that new $100 billion?

One prognosticator suggests numerous hedge fund failures, which will trigger a spate of liquidations. Will this be the next unraveling of leveraged risk? Will it cause a stampede out of equities?