A Return of Systemic Risk?

The sudden about-face in the direction of the US Treasury's Troubled Asset Relief Program ("TARP") has brought on new fears of increasing systemic risk in the financial markets.  TARP was originally intended to lower systemic risk by ridding the markets of the toxic securities that currently plague the balance sheets of numerous financial institutions.  By leaving those securities on the balance sheets, many believe that a crisis in confidence will re-emerge.  Bloomberg.com noted the following comments yesterday from a credit strategist at BNP Paribas,

"Substantial risk still remains within the U.S. financial system,'' said Rajeev Shah, a London-based credit strategist at BNP Paribas.  "Uncertainty about existing troubled assets could lead to increasing systemic risk.''

Where do we go from here?  Who knows?  However, one thing is certain.  Changing plans in mid-stream is certainly no way to reduce uncertainty in the financial markets.