THE BASIS POINT

How Road Trip Helps Explain TARP and Credit Crisis Triage

It’s been a very fluid situation as credit markets worldwide have gotten progressively worse. First $700b was passed by Congress for Treasury to hire a team to select and buy illiquid securities from banks. But that was quickly determined as being too slow to stop markets from freezing up entirely. So yesterday, we saw the announcement that Treasury would shortcut the original plan by directly injecting TARP funds into banks.

So to add a little levity to the situation, we’d like to offer this clip from Road Trip as an analogy. As a plot review: one of these four college guys accidentally mails a sex video of him and another woman to his girlfriend, so they have to take a road trip to retrieve the tape before she gets it. It’s a crisis, they’re panicking, and in their haste they decide to take a shortcut that leads to a dead end bridge…that they decide to jump. At that point, things go from bad to absolutely worst case—and this being from the same director as Old School, the results are hilarious, as you will see (or have seen 100 times and still love).

We happen to think Paulson is making the best decisions that anyone in that position could make in an unprecedented crisis. Yes this shift in TARP strategy (to give money to banks to redeploy and keep credit markets going) is hasty and yes it’s a shortcut, but with this level of market panic feeding on itself, this “jumping of the bridge” seems better and is certainly faster than “turning around” (which would be re-underwriting a bunch of junk assets in order to negotiate value and buy them).

Perhaps there will be a huge (and not funny at all) explosion later as a result. But the alternative looks to be a huge explosion now. Let’s hope Paulson and our other policymakers are right … and in the meantime, at least take a quick pop culture break and have a laugh.

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