By Dr. Pitchfork
The Truth About Bank Bailouts & Analysis Of TARP Alternatives
TARP Czar Herb Allison joined the idiots parade of TARP defenders Sunday with his Huffpo piece called "The Untold Story of TARP." Of course, you know that story already. You must have heard it a dozen times this week, alone. It's the same story Steve Rattner told in the Financial Times and it's the same story Tim Geithner told to Dan Gross just yesterday: TARP saved the world and the people who hate it don't know what they're talking about. The problem with this story is not that it's gone "untold," but that nobody believes it!
Let's cut to the chase. Time to play whack-a-mole. (Bullet-point quotes taken from Allison's article.)
- "No one wanted to bail out Wall Street. No one wanted to use taxpayer dollars to rescue an industry that helped cause the worst economic crisis in a generation. It was unfair. It was appalling. But it was necessary. We had no other choice."
My Comment: Of course we had other choices. Loads of them. I spent hours documenting several of them just yesterday. (And see below.) WHACK!
- "Two years ago, we stood at the brink of an economic catastrophe. Ordinary American families were questioning whether their money was safe in banks."
My Comment: No, they were not. Not even close. This is just blatantly false. Citi? B of A? Didn't happen. WHACK!
- "And now that the fog of an intense financial panic has lifted, it's clear that the critics and cynics were wrong. TARP has proven remarkably successful at stabilizing the economy and laying the foundation for future growth."
My Comment: Post hoc, ergo propter hoc. Not even close, Herb. TARP, along with Bernanke and Paulson's gloom, doom and martial law threats destabilized the economy. We've documented well the government actions that helped stabilize the economy. And TARP isn't one of them. WHACK!
- "But we're on the path to recovery. Businesses have added jobs for eight straight months. Private investment and confidence in banks have returned. The cost of borrowing for businesses, municipalities and individuals has declined dramatically."
My Comment: Um, no. We're not "on the path to recovery." The low, low interest rates on corporate and government debt reflect quantitative easing by the Fed and the extreme weakness in the economy, not the ability to finance a hot, speedy recovery. This has been addressed here, here and here. Herb has it exactly backwards. WHACK!
- "In fact, independent experts have estimated that overall, without the federal government's response to the financial crisis, including TARP, there would be nearly 8.5 million fewer jobs today and the unemployment rate would exceed 15 percent."
My Comment: Someone please tell me when Obama's favorite economist, Mark Zandi, and former Fed vice-chairman, Alan Blinder, suddenly became "independent experts." (They are neither.) The little propaganda piece they put out making these claims has been savaged by economist and blogger alike. Negative points for citing it. WHACK!
- "Many people think that TARP cost $700 billion. But Treasury is now confident that the lifetime cost to taxpayers will be less than $50 billion. Repayments have continued to exceed expectations. Three-fourths of the TARP funds provided to banks have already been returned. And the exit strategy AIG announced last week puts taxpayers in a considerably stronger position to recoup our investment in that company."
My Comment: We've addressed this before. This is nothing but a red herring. The costs of the bailouts extend way beyond TARP's nominal price tag. And the fact that we were paid back with our own money in many cases doesn't make us feel any better. Besides, we have rigged our entire fiscal and monetary order, through both "stimulus" and ZIRP, to save bank executive jobs and bonuses. If it cost "only" $50B to save Jamie Dimon and Lloyd Blankfein, it was $50B too much. Herb is deliberately missing the point, here. WHACK!
- "Many people think that TARP funds only went to Wall Street. But more than 450 small and community banks participated in TARP, which helped them deliver credit to local small businesses and families."
My Comment: The TARP infusions at small banks were an afterthought meant to provide political cover for politicians and the big banks. Besides, TARP in many cases had a negative effect on lending because of the dividend and other restrictions. Because of that, several small banks wanted out of TARP as soon as they realized they were being used, and many of them paid a steep price in getting out of the deal. Nice try with this one, Herb. WHACK!
- "Many people think that TARP created a precedent for future bailouts. But President Obama and Treasury Secretary Geithner worked tirelessly with Congress to enact the Dodd-Frank Act, which will ensure that the American people are never again put on the hook for the reckless acts of a few financial firms. That law gives the government new tools to shut down and dismember failing institutions rather than bail them out with taxpayer dollars."
My Comment: "Many people"? Try the entire corporate bond market. Never mind the fact that we are STILL "on the hook" for the "reckless acts of a few financial firms." The Frankendodd had ZERO effect on the rates banks pay in the corporate bond market. In other words, investors see no more risk of losing their capital in the wake of "Financial Reform" than they did before. Bank bondholders know they will be bailed out. It happened before and it will happen again. You know it. I know it. And I suspect Herb knows it. WHACK!
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The bottom line on TARP is that almost no one has been held accountable. And almost everyone, even those most responsible, have kept their jobs, been promoted, been awarded huge bonuses, or have ridden off into the sunset with millions in ill-gotten gains. Our entire monetary and fiscal order has been re-arranged to serve the interests of a few at the very top of the pyramid. The middle class has borne most of the risk. And much of that risk is still with us, whether in terms of our currency, the national debt, or social and political unrest. All the talk about getting the TARP paid back is a red herring. If someone breaks into your house, tears the place up, and then sticks a gun to your head demanding $700B, you don't thank him when he pays you back. Because a) you had a gun stuck in your face, and b) your house is still a freakin' mess.
The message of the bailouts is clear. The guys at the top get served first, at our expense. And the buck stops nowhere.
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Below are some of the alternatives to TARP:
- The Treasury, for example, stopped Paul Kanjorski’s fabled “electronic run” on the money market funds by issuing a blanket guarantee of all money market funds on September 19 – before TARP was even passed.
- The Fed announced that it would intervene in the commercial paper market on October 7 -- four days after TARP was passed and nipped that problem in the bud.
- Further, the Fed stepped up its activity under the TAF (Term Asset Facility) to $600-700B per month in the crisis period. Along with its intervention in the CP market, the TAF was used to both supplement and reinforce the inter-bank lending market.
- As for Rattner's claim that AIG would have failed without TARP, this is demonstrably untrue. On September 17, AIG had already begun sucking tons of cash from a lending facility the Fed had set up the day before. TARP had nothing to do with it. At that time, TARP was nothing more than a few jots and tittles in Hank Paulson's panic-addled brain.
- Though the TARP bill raised the FDIC limit to $250K, new legislation wasn’t needed for the FDIC to do so, or even for the FDIC to guarantee all bank deposits under a systemic risk exception – something which Bair, Paulson, et al. declared almost immediately after the bill was passed. There was almost zero risk at this point of a depositor-led bank run, and the actions taken by the FDIC here could have been accomplished just the same whether it came as part of the total TARP legislation or not.
- The same is true of FDIC guarantees of all bank creditors. Under the systemic risk exception, the FDIC was authorized to do this without anything that came in the TARP legislation. Part of this guarantee was achieved through the needlessly convoluted TLGP (Temporary Liquidity Guarantee Program), but the effect of the gurantees were the same and had nothing to do with toxic asset purchases or bank equity infusions through TARP
It was this set of programs, and not the idiocy of TARP, that calmed the waters and kept the credit markets functioning through the crisis period.