Speaking at the Securities Industry and Financial Markets Association's Summit on the Troubled Asset Relief Program Monday, Randal Quarles, a managing director at the Carlyle Group, provided some insights into just how leveraged America's financial system is.
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"How TARP develops from now will be driven by the logic of what's come before," said Quarles.
"There's been a massive increase in leverage in our financial system.
It's at about 350% of GDP," Quarles said. "The financial sector and
households drove that. The last time that the whole amount of leverage
was at this level was at the start of the Great Depression, and we're at
twice the level leverage of the early 1930s.
"We're at a level of leverage that's not sustainable, and those that
provide that leverage have come to realize that," he continued. "The
government's strong balance sheet can ameliorate the effects of the
massive deleveraging that needs to take place. That is a necessary step
no matter your political affiliation."
Still, Quarles thinks that TARP is far from being the final solution to the crisis.
"Institutions are realizing that in this environment they need to
anchor confidence," he commented. "But I don't think TARP capital will
be an effective signal of viability though. The only thing that can do
that is due diligence by a private capital investor that's willing to
put his money where his mouth is." -
George White
See more posts from the SIFMA TARP Summit
