Macroeconomists have always said that a bailout of the financial system should not be expensive if the problem was a loss of liquidity and not a loss of solvency.
It was unclear in 2008 which situation we were in when TARP was enacted.
It’s now pretty clear that as far as the private sector goes, TARP solved a liquidity problem. Estimates of the final cost of TARP have been declining for about a year, and are now down to $90 Billion (see the article entitled “Light at the End of Bailout Tunnel” in The Wall Street Journal).
However, Kids Prefer Cheese points out that this does not count the money that went into Fannie Mae and other GSEs. This is still forecast to go higher – indicating a solvency problem.
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