United Liberty

Not surprisingly, a new audit finds that former Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke misrepresented the health of key banks receiving TARP aid last year:

Federal Reserve Chairman Ben S. Bernanke and former Treasury Secretary Henry M. Paulson Jr. misled the public about the financial weakness of Bank of America and other early recipients of the government’s $700 billion Wall Street bailout, creating “unrealistic expectations” about the companies and damaging the program’s credibility, according to a report by the program’s independent watchdog.

The federal government last October loaned Bank of America and eight other “healthy” financial institutions a total of $125 billion - the initial payout from the Troubled Asset Relief Program, or TARP - in an attempt to avoid a series of major bank collapses that would push the sputtering economy into a free fall or depression.

The rationale for giving money to stable banks and not failing ones, regulators said, was that such institutions would be better able to lend money and thus unfreeze tight credit markets - a major factor in last year’s Wall Street losses.

But an audit released Monday by TARP Special Inspector General Neil Barofsky says senior government officials and Wall Street regulators, including Mr. Bernanke and Mr. Paulson, had “affirmative concerns” that several of the nine institutions were financially shaky.

“By stating expressly that the ‘healthy’ institutions would be able to increase overall lending, Treasury may have created unrealistic expectations about the institutions’ condition and their ability to increase lending,” the audit says.

A recent LA Times/Bloomberg poll shows that 55 percent of the American people do not support a taxpayer bailout of the financial sector of the economy, while only 31 percent think it is the government’s responsibility to provide these funds to the struggling firms. The first plan presented, drawn up by Treasury Secretary Henry Paulson and the Bush administration, has drawn fire from many legislators and political action groups. The Paulson plan calls for $700 billion dollars to be spent to purchase the assets that the mortgage companies are unable to sell, a transfer of more authority over the markets to the Federal Reserve, and no oversight or judicial review. That would be a hard pill to swallow for any legislation, let alone a taxpayer bailout of financial corporations.

The terrorists we must fight are not crouched in caves thousands of miles away.

The terrorists we must fight are threatening us with financial weapons of mass destruction that are destroying our economic system.

As described by Warren Buffet in his 2003 letter to Berkshire Hathaway shareholders, the financial industry has created new types of derivatives that he described as “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

As summarized in this BBC article:

Contracts devised by ‘madmen’

The recent sweeping bailouts of irresponsible businesses reminds me of a quote by the great Thomas Jefferson, “I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it.”

That Jeffersonian sentiment doesn’t seem to jive with economist Mark Zada, who told NPR in an interview:

“What if the Fed and Treasury did not step in aggressively, and in fact they were right? Then the impact on the economy, and on jobs, on incomes, on profits and therefore on tax revenue would be even more serious.”