On its own the formation of such a fund is by no means a panacea. Many in the markets have pointed to the problems the Treasury could have agreeing on a price for assets – most of which will be tough to value in the first place. If a price can be agreed, the next worry is whether once banks offload these assets their balance sheets will be in sufficiently good shape to resume lending. In some cases, banks might go under anyway as the prices at which they can sell assets leave them with little left over or the clean-up might reveal even more problems.
As the Bank of England and European Central Bank’s special liquidity schemes have shown, government and central bank intervention does not necessarily mean that banks will lend money. Both central banks have extended their liquidity schemes but frustration persists because banks seem to be using them for funding rather than liquidity.
What is clear is that the Tarp is going to cost the US taxpayer dear. Alongside Paulson’s $700 billion solution, Congress received a request to raise the government’s debt limit to $11.3 trillion from $10.6