Do you still buy the rhetoric of Barack Obama and Tim Geithner that bailouts magically pulled us from the brink of a depression? Yeah, me neither:
One Treasury estimate, leaked to The Wall Street Journal last week, put a price tag of $89 billion on the financial bailout. That’s far below the $250 billion the Congressional Budget Office estimated last year or other analyses that put the all-in number at $1 trillion or more.
A major factor missing from Treasury’s math is the vast transfer of wealth to banks from investors resulting from the Fed’s near-zero interest-rate policy.
This number is not easy to calculate, but it is enormous. The Fed’s rock-bottom interest-rate policy bestows huge benefits on banks because it allows them to earn fat profits on the spread between what they pay for their deposits and what they reap on their loans. These margins are especially rich on credit cards, given their current average rate of 14 percent and up.
The losers in this equation are savers and investors, especially people on fixed incomes. “All interest-sensitive investors have been transferring what they should be receiving to Uncle Sam and the banking industry,” Mr. [Christopher] Whalen said. “And you are talking about a lot of money.”
By allowing the banks to keep bad loans valued on their books at unrealistic levels, the government has prolonged the agony of this downturn. Mr. Whalen suggested that the government should have made the banks write down loans to realistic levels a long time ago, while letting them keep the TARP money as a financial cushion.
Instead, the banks were encouraged to pay back TARP and put off the day of reckoning when it came to assessing the real-world value of the toxic assets lurking on their books. And so the shrinkage of the banking system continues.
During the race last fall in NY-23, I wrote about the anger from conservatives directed at former House Speaker Newt Gingrich over his endorsement of Dede Scozzafava.
If you’ll recall, Scozzafava was/is a statist on economic issues, supporting card-check, the “stimulus” bill and tax hikes, among other troubling positions. This led many conservatives to endorse Conservative Party candidate Doug Hoffman. Gingrich, however, stood his ground, continuing to back the same candidate as Markos Moulitsas of the Daily Kos.
Now Gingrich tells us that he learned a lesson from NY-23:
“She turned out to be a huge disappointment, and she turned out not to be frankly a loyal Republican,” Gingrich told an interviewer in New Hampshire this weekend.
The former speaker added that conservatives who criticized his endorsement at the time “had the better of that argument.”
Gingrich said he didn’t realize how “radical” Scozzafava was when he endorsed her. Conservatives lambasted her for supporting gay marriage and card check, among other liberal positions.
With Scott Brown’s impressive win over Martha Coakley in Massachusetts on Tuesday, Republicans are poised to make gains in both the House and Senate in the upcoming mid-term elections. Not to rain on my Republican friends’ parade, but since Tuesday I’ve noticed some over-confidence among GOP ranks. Perhaps some perspective is in order.
We should certainly take Tuesday’s election as a rebuke of the President Barack Obama’s agenda, including his health care “reform” proposal. It came in what was one of the bluer states in the country. Although pundits agree that Coakley was a terrible candidate, it’s naive to deny that Voters aren’t happy with Democrats.
It is, however, important to point out that once you look at poll numbers, they’re not too happy with Republicans either. It seems that Republicans are forgetting that.
In 2006, voters went to the polls and gave Democrats complete control of Congress for the first time since 1993 because Republicans were spending too much money and the war in Iraq had dragged on for six years with no end in sight. It wasn’t because they approved of Democrats.
We saw this again in 2008, only this time the economy was tanking and bailouts became the punchline that led Barack Obama in the White House, despite the fact that he voted for the bailouts (he played the populist anger well).
Republicans want to forget that George W. Bush existed, and that’s understandable. Unfortunately, Republicans forget that they had control of the House and near complete control of the Senate from 2001 to 2007. Whether my Republican friends want to admit it or not, Republican members of Congress were complicit in growing the size and scope of government. Many of these folks are the same people I’ve seen at Tea Party events complaining about Barack Obama.
Bill Issac, former head of the FDIC, says TARP made bad situation worse:
The problems bedeviling banks today could have been a lot less damaging, too, Isaac said, if not for the government’s response, which he said promoted a crisis mentality with public statements and inconsistent policies.
Isaac ripped the federal Troubled Asset Relief Program, which allowed the purchase of up to $700 billion in mortgages and other toxic loans.
“I still believe it was a horribly bad idea,” he said.
Isaac criticized the inconsistent treatment of troubled financial institutions.
“We handled one transaction after another in an ad hoc fashion without giving people any sense that anybody was in charge and knew what they were doing,” he said.
Some banks were bailed out, he noted, while others were allowed to fail.
Not only did TARP allow the government to pick winners and losers, which isn’t new territory, it is going to lead to more bailouts in the future, more housing bubbles, because Congress, the President and the Federal Reserve have not figured that they are what got us here. It wasn’t the free-markets or capitalism, it was constant government intervention and an entitlement mentality…that every deserves the “American dream” without really doing anything to earn it.
That is why the past is the present and the future.
We often hear Blue Dog Democrats referred to as “fiscal conservatives” and we’re told about their concerns about the budget deficits.The guys over at National Taxpayers Union have put together a spreadsheet showing how Blue Dogs or otherwise vulnerable districts have voted on TARP, the auto bailout, the “stimulus,” the budget and ObamaCare (among a few other votes).
If you live in one of these districts, I’d encourage you to support their opponent in 2010. These Blue Dogs are not fiscal conservatives. They are part of the Culture of Debt in Washington, DC.
The overseer of TARP, the $700 billion bailout passed by Congress last fall, says the program is a failure in the eyes Americans:
A Treasury Department watchdog is warning that a key $700 billion bailout program has damaged the government’s credibility, won’t earn taxpayers all their money back and has done little to change a culture of recklessness on Wall Street.
“The American people’s belief that the funds went into a black hole, or that there was a transfer of wealth from taxpayers to Wall Street, is one of the worst outcomes of this program, and that is the reputational damage to the government,” said Neil Barofsky, special inspector general of the Troubled Asset Relief Program (TARP), in an interview.
“We don’t even know where the money went,” says Rep. Daniel Lipinski, D-Ill., who recently called for TARP assistance to end in December, when it’s set to expire. The Treasury has the authority to extend the program until next October.
The report criticized Treasury’s implementation of the program and its lack of transparency, making 41 recommendations, 18 of which were implemented. Barofsky says it’s “extremely unlikely” that taxpayers will recover the $77 billion committed to the ailing auto industry or the $60 billion in TARP assistance to American International Group as part of a pledge of up to $180 billion in aid. An additional $50 billion to modify unaffordable home mortgages “will yield no direct return.”
Financial experts say it’s no surprise that the government won’t be able to recoup all of its investment in TARP. “Anybody who said this was all secured lending that would surely be repaid was kidding himself,” says Lawrence White, economics professor at New York University’s Stern School of Business.
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.
Since I’m at the Defending the American Dream Summit where several of today’s speakers openly supported TARP last year, I found it sort of ironic that today is the one year anniverary of the program:
Supporters say the program pulled the financial system back from the brink of disaster. The stock market has rebounded, banks are making profits again. Disaster, they say, has been averted.
Detractors counter by arguing that the program only rewarded Wall Street, the same people blamed for causing the mess in the first place. It has not, they say, helped Main Street, as unemployment has risen to a 26-year high and foreclosures have continued to climb.
Meanwhile, the bailout morphed into a much bigger program, with money for insurance companies and automakers.
According to watchdog Neil Barofsky, the special inspector general for the program, it is “highly unlikely” that taxpayers will ever get paid back their full investment.
TARP program was passed out of a since of fear, much like the USA PATRIOT Act. Members of Congress lined up to cast away your tax dollars as they cast aside the Fourth Amendment in 2001. I understand the fear of the unknown, but too often our representative react without clearly thinking through the impact of their votes.
Much like the “stimulus” bill, which has not brought down unemployment, TARP is a failure.
When Congress passed the bill that created Troubled Asset Relief Program back in October, we were told that the purpose of the bill was to buy up all the toxic assets sitting in bank portfolios so that the banks could return to health and start lending again.
Well, TARP was passed, the money was spent, and the toxic assets are still sitting there:
Signs abound that the worst of the recession is over: Stocks have been surging, the rate of job losses has slowed, so it seems that the economic apocalypse has been averted.