the bailout, I mean rescue plan, can be seen as nothing less than a new Ponzi scheme. It works like this:
Fed as only lender, in an attempt to keep the financial system from imploding;
TARP needed to keep Fed balance sheet intact so that it can continue as only lender;
Treasury will need to significantly increase the amount of Ts (public money) auctioned to fund TARP;
Panic serves to encourage T. buyers, especially for bills;
This represents a liquidity trap: TARP recipients of Ts will hoard cash to buy Ts: rinse and repeat.
This results in drying up of lending to corporations/crowding out private capital - no new credit lines;
The Fed becomes a holder of private capital, the later of which is now frozen to protect that capital from deteriorating, The rollover scheme will restrict even more lending in the private sphere for purposes of keeping the financial sphere on life support, but with the consequence of furthering the deterioration of the 'real' economy.
The counterargument is that the TARP will end the fear, breaking the Treasury-hoarding. But with banks (presumably) able to use the new phony prices paid by the TARP as marks for asset valuation purposes (whether they sold to the TARP or not), you get less transparency and hence less faith in bank balance sheets.
