The Washington Post's lead article notes that bank losses are turning out to be even worse than the experts whom they rely upon had expected and therefore they will be needing the second half of the $700 billion provided under the TARP, and possibly even more money. The article then asserts: "The problems are intensifying the pressure on the incoming Obama administration to allocate more of the $700 billion rescue program to financial firms even as Democratic leaders have urged more help for distressed homeowners, small businesses and municipalities." Actually, there is no contradiction between helping banks and the way in which members of Congress have proposed using TARP money to help homeowners. The generally accepting mechanism involves having the government pay above market prices for existing mortgages. New mortgages are then issued, with a government guarantee, at a price close to the current market value of the home. The "help" for the homeowners in this scenario is the excess price that the government pays the bank for the mortgage. If Congress insists on money being spent in this manner, it will mean more money for banks, not less.
--Dean Baker
