The new TALF

More on this to come as details emerge, but here are some early impressions:

1. At $500 Billion initially, and up to $1 Trillion over time (Timothy Geithner: My Plan for Bad Bank Assets ) it may still be too small. I hate to say this, as the Federal debt is becoming obscene - and the worst-case scenario remains a dollar/Treasuries collapse - but bank losses just here in the US are now estimated to be $1.8Trilllion (RGE Monitor), only $300 Billion of which have thus far been realized. So, there's another $1.5 Trillion to come, at least. At $500 Billion, the TALF is thus 2/3 too small; at $1 Trillion it's 1/3 too small.
2. It assumes that underlying assets behind the 'troubled/toxic' assets will stabilize in the near future - that the worst of asset value collapses are behind us. I'm not so sanguine about that. Things economic are worsening, not stabilizing. The housing market is still probably 18-24 months from bottoming (and thus the value of RMBs, CMBs etc will continue to plunge) and any other consumer debt (or, I'd argue, equity) security is likely to weaken in value over the next year. See Meredith Whitney on this - 2009 will be worse for banks than 2008 (and 2010 won't be a treat) because the underlying economy - esp consumers - will be much weaker. Thus bank losses will continue, and the toxic assets will become ever more toxic. And we therefore still have the fundamental question we've had all along - what are these things worth? And my guess is that a lot of investors will still be too wary to kick in
3. Who really wants to hop into bed with the feds when Congress is running wild? We urgently need signs of responsible behaviors from folks on Capitol Hill to calm investor fears of overly-meddlesome regulators
4. Krugman's loathing of the whole thing worries me: Financial Policy Despair Even more important, however, is the way Mr. Obama is squandering his credibility. If this plan fails — as it almost surely will — it’s unlikely that he’ll be able to persuade Congress to come up with more funds to do what he should have done in the first place.
5. I still much prefer the more radical (yet time-tested) approach of nationalizing the banks - or the riskiest ones. Guarantee bank debt at the Federal level and take control of insolvent banks. And with $1.5 Trillion in losses still to come, you can bet your bottom dollar there is a pile of insolvent banks out there. Let's finally face this head-on.