The JJW Blog

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This is why the Treasury bailout, however necessary, should merely be a prelude to systemic reform. Consider the three very fragile links in a chain of risk that many observers recognized years ago: high financial leverage; accounting-rule arbitrage, inducing the purchase of credit insurance; and a reliance on a relatively narrow array of counterparties to underwrite those credit guarantees. (It strained credulity to suppose these insurers could make good on all their insurance contracts in the predictable event that a class of assets simultaneously deteriorated. One insurer alone wrote more than $400 billion on mortgage securities.) TARP addresses none of these issues.