Free Markets, Free People

TARP IG blasts program

So much for administration spin about the effectiveness of TARP. Neil Barofsky, TARP’s special inspector general, deals the administration narrative a shot to the head. In effect, he tells Americans angry about the program they have a right to be:

…[M]any Americans to continue to view TARP with anger, cynicism, and mistrust. While some of that hostility may be misplaced, much of it is based on entirely legitimate concerns about the lack of transparency, program mismanagement and flawed decision-making processes that continue to plague the program.

Some specifics:

“When Treasury refuses for more than a year to require TARP recipients to account for the use of TARP funds, or claims that Capital Purchase Program participants were “healthy, viable” institutions knowing full well that some are not, or when it provides hundreds of billions of dollars in TARP assistance to institutions, and then relies on those same institutions to self-report any violations of their obligations to TARP, it damages the public’s trust to a degree that is difficult to repair.”

Ya think? And you remember all the rhetoric about forestalling foreclosure? Uh, FAIL:

[T]he most specific of TARP’s Main Street goals, “preserving homeownership,” has so far fallen woefully short, with TARP’s portion of the Administration’s mortgage modification program yielding only approximately 207,000 (out of a total of 467,000) ongoing permanent modifications since TARP’s inception, a number that stands in stark contrast to the 5.5 million homes receiving foreclosure filings and more than 1.7 million homes that have been lost to foreclosure since January 2009.

Now, I’m not agreeing that any of that should have been done – this is about claims the administration and Democrats made for spending the money.

Question: where has the money really gone?

Oh, and you remember “spurring lending” as a key reason for TARP? Not so much.  In fact, not much at all:

“TARP has failed to ‘increase lending,’ with small businesses in particular unable to secure badly needed credit. Indeed, even now, overall lending continues to contract, despite the hundreds of billions of TARP dollars provided to banks with the express purpose to increase lending.”

Meanwhile in the "moral hazard" department – success:

“…[I]ncreased moral hazard and concentration in the financial industry continue to be a TARP legacy. The biggest banks are bigger than ever, fueled by Government support and taxpayer-assisted mergers and acquisitions. And the repeated statements that the Government would stand by these banks during the financial crisis has given a significant advantage to the larger “too big to fail” banks, as reflected in their enhanced credit ratings borne from a market perception that the Government will still not let these institutions fail, although the impact of this cost may be blunted by recently enacted regulatory reform.”

Almost a trillion dollars and they really don’t know where it has gone. Additionally, they’ve not at all achieved the goals for which they tried to tell the public this money was so damned important.

Lack of transparency?  Mismanagement?  Flawed decision-making?  Why weren’t those things included in the administration’s spin. 

And we just let them take health care from us as well.

Nice.

~McQ

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19 Responses to TARP IG blasts program

  • Any private-sector manager or trustee would have HUGE liability problems if they behaved like this.  For government, it is just “meh“…  Or worse, “Screw off, knuckle-dragger…!!!”
    How STOOOOOOoooooopid do people have to be to trust government over the private sector?

  • TARP was sold as meant to unstick the credit market.  In reality it was a rescue plan for various financial interests.  A hold over until the government could start infusing taxpayer money directly to banks on more low key just below the radar approach.  Like the Fed lending money to banks at zero percent and the banks then using that money to buy US treasuries, basically paying the banks for existing with taxpayer money/IOUs. 

    • As I recall, the credit markets froze when State Street’s money market fund “broke the buck” because the withdrawal rate got too high and they needed to “panic sell” assets..  What saved the credit markets was the Federal guarantee of money market funds and the increase of FDIC insurance on bank deposits up to $250K on each.  That was not a part of TARP.

      • I was reading Sorkin’s Too Big To Fail, and he seems to say that the banks were getting themselves re-capitalized privately – Japanese and Chinese money mainly – after Lehmans. But then TARP was forced on them. Citigroup was privately pleased of course, because its likely they would have needed that anyways.
        I hope the MBS are now sent back to the banks, and we can let them fail in a do-over.

    • This is how it always is with the banks. Give ‘em a ten year drip feed of automatic profits and see if they get better. LOL. Moral hazard.

  • Oh, and this idea of the Fed lending at 0 percent and then paying the banks to deposit the money back with the fed is not only costing taxpayers, it is the factor causing the massive transfer of funds from retirees and savers to the banks.  In addition, this ZIRP has caused the carry trade to move from the Japanese yen to the American dollar.   That means “borrow in the the US and invest overseas”.
     
    Now the Fed wants to “encourage” inflation with another round of QE2.

    • I am more sympathetic to QE because we really don’t want deflation. Buts its not something you want to be doing unless you really, really have to.

  • “Almost a trillion dollars and they really don’t know where it has gone”

    Interesting that the government required banks to increase their reserves and that they be low risk investments…. like Treasury bonds. 

     Hmmmm quite a scam going there. Here’s some money but you can only use it to buy our bonds.

    • Unless I’m mistaken, the Treasury got back the $700 billion less about $50 billion (probably in GM and Chrysler) that will probably never be recovered.

      • AIG? And by the way, is AIG shut down yet? I recall looking into the matter and they said end of 2010 was their goal.

  • Frankly, I never had a problem with TARP when it was sold as a “bridge loan” window to the financial institutions.  These institutions have leveraged the economy out the wazoo and it had to be unwound.  This was in everybody’s interest.
    When they used it to bailout the GM’s and Chyrsler’s .. err .. UAW’s pensions and turn over ownership to the UAW, I had enough.  This is when the taxpayers started to lose money.
    The elephant in the room (and big joke on the taxpayers) is that it really didn’t relieve any “toxic assets,” the “TA” in TARP.  Most of those “toxic assets” are still out there.

    • NeoThe elephant in the room (and big joke on the taxpayers) is that it really didn’t relieve any “toxic assets,” the “TA” in TARP.  Most of those “toxic assets” are still out there.

      Bingo.  So, why was this thing shoved down our throats?  Was it due to Bush, Paulson et al‘s mismanagement, or was this some sort of bait and switch?

      • As a lender window to help our financial institutions unwind their leveraged positions, it was great.
        Practically anybody with a pension should thank Bush that they did.
        The Obama folks were like bulls running through the Vatican.

      • Not a bait and switch. Originally they thought they could buy some of the bad assets and help that way. Then they realized how huge the market was for MBS and that they couldn’t do that. They decided injecting capital directly was wiser. I kind of agree with TARP as a bridging loan. Those days seemed more like a run on banks then just “bad news.” But, letting them fail may have been useful, too.

  • Any bets  about when the  IG report will be published in the NYT? Or even mentioned on a prominent page?

  • It seems like lending billions to the  banks to keep them afloat was way easier to manage and get some bang for your buck, then setting up a mortgage modification program.
    Same thing with the weatherizing program. When you go retail, government reverts to DMV service. Better to just send out checks to everyone.
    Easier to monitor the results as well.