Many investors are sitting on the sidelines, as is much money. Why? Because it is impossible to know what the rules of the game are. And that's because the administration and the Congress keep changing the rules in capricious ways in pursuit of larger political objectives.
Government interference in the normal conduct of business has had a chilling effect on financial markets and threatens the progress of the recovery. The Treasury and the Fed have created many new programs to provide liquidity to the financial system, to help banks restructure their balance sheets and to re-invigorate securitization markets.
So far, the interest in these has been distinctly muted because potential participants fear the longer term consequences of getting involved with any of these programs.
The Term Asset-Backed Lending Facility (TALF) is a good example. It was designed to stimulate an important part of the credit market--based on securitized loans--by providing a facility to lend up to $1 trillion in loans to buyers of top-rated securities that are collateralized by credit-card debt, auto loans, student loans, small business loans and commercial real estate loans. Because they are non-recourse loans, the investors have little downside exposure. But so far, they have stayed away. They are afraid of the strings that may be attached, since the loans are ultimately secured by TARP funds.
Above all, business people are rational actors, especially those with a fiduciary duty. If you can't be sure of the rules, it would be foolhardy to invest money, or pursue financing of any sort. That's why the Chrysler deal is such a problem. Why put money into an enterprise if the government is able to rewrite the rules to your detriment and vilify you for making legitimate claims as a creditor?
This isn't a game. I wonder if some of the people in Washington really understand the implications of what they are doing.