By Dr. Pitchfork, an iconoclast who writes at Daily Bail.
In “5 Myths About TARP,” Tim Geithner joins Steve Rattner and Herb Allison in the parade of Washington insiders who have gone out of their way to tout the great success of TARP, calling it the “most effective government program in recent memory.” If you think the Timmy doth protest too much, methinks you’re exactly right.
Geithner starts by rehearsing the same, tiresome narrative we’ve heard a thousand times:
[TARP] was essential to averting a second Great Depression, stabilizing a collapsing financial system, protecting the savings of Americans and restoring the flow of credit that is the oxygen of the economy. And it helped achieve all that at a lower cost than anyone expected.
Then Geithner proceeds to debunk some “myths” about TARP.
Myth 1. TARP cost taxpayers hundreds of billions of dollars.
Well, TARP did cost hundreds of billions of dollars. This isn’t a myth. $700B were authorized by the legislation. Nearly $400B were appropriated and disbursed. And according to the latest figures from the U.S. Treasury (that would be the little outfit where the author, Tim Geithner, hangs his hat every day) roughly half of that amount, about $200B, remains outstanding. And the costs of TARP are a “myth”? Apparently Geithner thinks we should give him a cookie just because some of the money might be paid back — in the future. Don’t be fooled by headline numbers saying TARP may cost “only 30B,” because those numbers are based on wildly optimistic projections of what Treasury’s ownership of AIG, GM and C will be worth.
And how did the banks pay back TARP? First, we got rid of mark-to-market accounting, changing their balance sheets overnight, and then the banks have been borrowing from the Fed at ZERO and earning the spread on Treasuries or anything else they wanted to put the money in. The effect of this process is a transfer of wealth from savers (who depend on bank CD’s) and pension funds (who are often required to invest in goverment bonds) to the same banks that took money through TARP. This cost amounts to hundreds of billions of dollars each of the last two years. And TARP had negligible costs?
Besides, like we’ve said before, 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.
Myth 2. TARP was a gift to Wall St. that did nothing for Main St.
This is Geithner’s attempt to construct a straw man (TARP “did nothing”) and then blow him down. Was TARP a gift to Wall St.? Yes. What did TARP do for Main St.? Not much. Geithner’s claim here is that TARP helped stop a financial panic that would have hurt the rest of the economy. First of all, contrary to popular belief, TARP wasn’t actually very helpful in the crisis and may have accellerated it. The actions that truly helped in the crisis period are discussed here. But we were never faced with a choice between TARP and doing nothing while the world burned. This false choice between TARP or nothing is repeated almost every single time a TARP apologist opens his or her mouth. Don’t let them get away with it. Repeat: there was NEVER a choice between doing TARP and doing nothing.
But Main St. did get something out of the deal. Delinquent borrowers were able to apply for HAMP. HAMP allowed banks to give borrowers false hope for a few months while they continued to pay their mortgages out of their life savings. Banks and servicers also collected some nice fees for letting borrowers sign up for the program — on a temporary basis. Real nice. See here and here. Main St. thanks you, Mr. Secretary!
Myth 3. TARP left our financial system weak.
Timmy doesn’t even try on this one. Makes some claim about how government ownership of Fannie, Freddie and AIG, together with Bank of America’s purchase of Merrill, makes the system stronger. What? Oh, and then there were the non-stress tests. Big whoop. Question: If the financial system is so strong and stable, then why is the Obama administration still so afraid of ruffling its feathers? And why are they terrified of honest accounting? Well?…. (Cue crickets.)
Myth 4. TARP left the banking system more concentrated and more vulnerable to a crisis.
Geithner admits that this one isn’t a myth at all. So that’s 4 Myths, but who’s counting? Still, it’s OK that our banks are bigger than they were before the crisis, Geithner says, because Europe’s banks are even more concentrated (and everyone knows they’re not at risk of a crisis). But it’s also OK to have Too Bigger To Fail banks because now we have this wonderful thing called the Dodd-Frank Act. And it has “a clear prohibition on taxpayer-funded bailouts.” Meh. Sorry if I’m underwhelmed by a “clear prohibition.” Because as one wag points out, “We wipe our asses with the Constitution these days, in case you haven’t noticed.” Moreover, most of those credit default swaps that made them so afraid in 2008 are still out there. There is ZERO chance that the resolution authority is actually put into use.
Myth 5. TARP was part of Obama’s strategy to take more control over the economy.
Anyone who thinks that Obama has “control” over Wall St. is out of his tree. In any case, Geithner helpfully points out here, that not only did Democrats like Obama fall to their knees in 2008 and fellate the TBTF banks, but so did Bush and a bunch of Republicans. Glad you see it our way, Timmy.
—
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. That includes Tim Geithner. He was president of the NY Fed from 2003-2008 and oversaw the crisis from start to finish. Because of the failures of people like Geithner, our entire monetary and fiscal order has been re-arranged to serve the interests of a few at the very top of the pyramid. Because of the actions (and inactions) of people like Geithner, the middle class has borne most of the risk associated with TARP and all the other bailout programs. And much of that risk is still with us, whether in terms of our currency, the national debt, or social and political unrest.
The message of the bailouts, like Geithner’s message to us, is clear. The guys at the top get served first, at our expense. We are expected to be grateful that people like Geithner have bailed them out. And the buck stops nowhere.
34 comments
Comments are closed.
You did your usual phenomenal job with this one pitchfork…
The cynical side of me wonders if Geithner is already thinking ahead to Bank Bailout v. 2.0 — Chris Whalen has said repeatedly in the past 2 weeks that the big banks will need more gov’t. help within 12-18 months…
Though I suspect Tim will be gone by December and replaced by Bloomberg as Kudlow has sourced recently…
Ultimately, I think Tim has little fear of lying about TARP — even in such a public way — he knows that very few voters care or are even paying attention…and he gets a free pass from the financially-illiterate mainstream media who repeat his lies without a 2nd thought…
Again, great work…
And we have to suck it up and cope as per Charlie Munger. Of course he is free to live off Fed and Government’s tits (stuffed with savers, retirees and tax-payers money)
Welcome to the New America!!
Ah yes, Charlie Munger. In the early 80’s I owned a yacht building company. I received a call from a yacht designer friend asking if I wanted to attend a meeting with a potential client. When I arrived I was introduced to a dapper little man who claimed to be associated with Berkshire Hathaway. He had a series of sketches literally drawn upon cocktail napkins, and struck me as being the most clueless boat dreamer I had ever met. (and that is saying a lot!)
He claimed they had just bought an uncompleted boat designed by my friend with the intention of turning it into a corporate yacht. Now I happened to be familiar with this particular hole in the water. The builder had stiffed the designer his fee, and totally ignored any structural engineering during construction. Its only use was as fodder for chain saws.
I concluded that this fool was an imposter— he couldn’t possibly be who he said he was and be so naive. Turns out it was Charlie Munger.
Did anyone realize when they were doing their “costs” they conveniently left blank the line for HAMP. Why is that important? Because HAMP is intentionally set up as a subsidy and there will be zero returns on the HAMP money. Oh by the way there is still $40B in HAMP money that has not been spent. I believe only the TARP COP has really pointed this out. If the GOP doesn’t kill HAMP, HAMP could end up continuing on for 5 or 10 years.
I’m sure Geithner would agree that when TARP was established there was an infinitesimal risk of an asteroid striking earth. Since an asteroid strike has not occurred, TARP must have saved the planet and Timmy can take credit for taht as well.
Heh.
If you watched the Charlie Rose interview, the claims Geithner was making were nearly as outrageous as that. Every improvement in the economy since 2008 he attributes to the actions of “this president,” by which, of course, he means “ME, Tim Geithner.” On the one hand, you might be taken aback by that kind of hubris, but what is really shocking is that Geithner and Bernanke, to name just two, helped sow the seeds for the very crisis they claim to have saved us from. Geithner’s ability to compartmentalize his own role like that is almost pathological.
Just wait. By election time, they’ll have saved us from asteroids, too.
http://www.charlierose.com/view/interview/11237
An arsonist who wants credit for helping to contain the fire, even though he did it by bulldozing the rest of the neighborhood.
Like Bush and Capitalism. He had to destroy it to save it. Or like destroying villages in Vietnam. They were saved too.
Wait until Geithner’s friends over in Asia have every penny of wealth stripped from them. Since 1971, they tried to mandrake to China and carry the apex of the pyramid with them yet again. But evolution and tipping points are creating a strange outcome indeed.
It will be like Harrison Ford in the Fugitive but he faces off against himself as the evil pharma guy at the end. What did these people think would happen? Feudalism in Europe did not survive for a reason and the endings were quite nasty.
I have great logs saved at Seeking Alpha and Raging Debate for three years, sent to lots of people. Accurate forecasting as this stuff is so predictable if one studies history and variables long enough. Didn’t store it out of vanity or tried to be the next CNBC guest wiz either.
Instead, created a nice cool gift for the American people I have been working on to mitigate losses. What, you think you authors are the only people doing the 90 hour weeks ;-^}
I know that quite a few other innovators have been working on other things as well. Take care of one another! God bless America the one I am going to someday soon love once again. And God bless every citizenship on earth. Every dark night has a new dawn.
Which ‘innovators’ are those, praytell?
Thank you Mr. Pitchfork
And, just as a comparison, consider Messieurs and Mesdames Pitchforks:
http://www.nytimes.com/2010/10/16/world/europe/16france.html?hp
Merci, Doug. Vive les pitchforks de France!
The truth really is this simple. Spectacular read, which ought to have all of US sharpening our pitchforks.
Forget the pitchforks. This nation is so castrated, so dumbed down, so fu**ed up in the head, it’ll never rebel. All the average American wants is to get high every evening. This nation already is like China after the opium war. Expect legalization of drugs as the elites’ next counter-revolutionary move – that’ll buy them another 100 years.
Psychoanalystus
Fat chance of Federal legalization being done. The DEA is hellbent on enforcing marijuana laws here in California. Just another example the Feds don’t give a damn about democracy or the people.
Nice rebuttal. The first point is really the most important. In the great scheme of things, TARP was small potatoes. Its raison d’être had been superseded by much larger programs at the Fed and by sanctioned lying through the changes in accounting rules through the FASB. That said, it was always the Bernanke-Geithner-Summers-Rubin strategy to recapitalize the banks out of the hides of ordinary Americans: foreclosures, high unemployment, fees, ZIRP, and bubbles. Huge resources have been directed away from the needs of ordinary Americans for the benefit of a few, increasing and exacerbating already great wealth inequalities even further. In other words, massive looting. That is the one word this post could have used. In that regard, Geithner’s defense of the TARP is a great piece of misdirection. If we can be made to concentrate on the TARP, then we are not focusing on the much greater program of looting.
Regarding Dr. Pitchfork’s essay: what can I say, when you’re right you’re right. Thanks for providing us with a conveniently enumerated reference stating exactly why the TARP apologists are full of it. I will happily shove it under the nose of anyone naive enough to say that TARP turned out to be a good idea.
Obviously they are telling us how well TARP did so we can do TARP 2.0 next year. Soon we can pay of the National Debt, I’m sure.
None of this stuff is a one time emergency fix. It’s all about setting precedents.
I especially liked the more government control myth. GMAC is majority government owned, and that’s where foreclosure gate began.
5 Myths about Rape
And how they relate to TARP
1. If you don’t say “no” it isn’t rape
TARP was presented as the ONLY way to avert a melt down. The rapist used a gun. A more thoughtful approach would have at least extracted some concessions from the banks and ensured some measure of accountability in exchange for the bailout.
2. You brought it upon yourself (you flirted, didn’t cover up, didn’t take precautions, etc.)
The fact is wages have been stagnant for two decades. People turned to credit for relief and responded to what seemed like a good deal (the opportunity for homeownership).
3. If alcohol or other drugs were consumed, you have no case
Financial Services Industry shrills tell us over and over that Americans were credit junkies and the industry was just servicing their clients. This is poppycock. The financial industry pushed credit relentlessly and the regulators let them do it without regard to the consequences (because they were captured). The FBI warned of fraud in the subprime market years before TARP but nothing was done about it.
4. Your past indiscretions will be used against you.
Americans have been complacent and politically apathetic. They have allowed politics to be overtaken by moneyed interests. Some say, “you get the government you deserve.” That doesn’t excuse the fact that public trust was violated.
5. What’s done is done, its best to just forget it and move on
Accepting the unacceptable (we were ALL responsible for the financial crisis – TARP was a success that cost little and thereby reflects well on our governments stewardship of the economy) is personally destructive and emboldens the perpetrators.
Jackrabbit, that’s brilliant. Particularly #’s 1 and 5. And I don’t think it’s simply a matter of hyperbole to think of the bailouts in terms of rape. You see it all the time in fact (though not expressed with such wit), but it really is a matter of power not sex…I mean, direct dollar cost to the taxpayer. Fairness, the public trust, the rule of law — all of those have been “violated” by the bailouts.
Well said.
Thanks Dr. Pitchfork. When I first saw Geithner’s “5 Myths” I was livid. I’m glad you wrote the post so I could respond in some way. I wonder if arb-ing the Public Trust might be aptly termed “social rape.”
I made the analogy to rape because so many have a hard time relating to what has happened. They look for easy answers. Too many see this as a “victimless crime” (hoocoodanode?) and/or have been led to believe that we all share some of the blame. Thus the easy analogy to rape, where blaming the victim is a classic part of defense strategy.
Geithner is unbelievable. He writes “Welcome to the Recovery” as the economy starts to decline again, and “5 Myths” as Bank malfeasance comes front and center *once again*. He has offended so many people with this inane bullshit that it is incredible that Obama keeps him around.
I’ll second that.
Great post!
Z
Finance appears to be systematically looting the country. A few things I have observed in my state recently: New library buildings without the means to keep them open, let alone provide books and librarians. New doctors’ offices and hospitals, but people can’t afford to use them. A new one is millions to be spent to house the sheriff’s office – a sheriff that doesn’t respond to calls due to “budget cutbacks”. Tens of millions spent on a new school in a neighborhood that cannot possible afford to service its debt. Privatized boondoggles like prisons that sit empty at taxpayer’s expense. All of these financed on terms I doubt any school board or country commissioners office understands. All festering future financial crises which will require raising taxes on a declining tax base.
There is a total disconnect between the wage earners/taxpayers and the obligations being created. The Main St. economy was already running on bubbles, yet the government/finance economy continues on as if the host economy was going to revert to what was unsustainable.
Yes, everyone who worked their lives, paid their taxes, “played by the rules” has been violated, not just by the bailouts but the ongoing reign of finance. The things we need for a good life – like healthcare – are being pumped and dumped by the looting class. Next: inflation in food and fuel being deliberately created as a Bernanke remedy for our ailing economy. Who needs terrorists when we’ve got Washington and the not-Federal Reserve attacking us?
so true. and there’s really no school of economic thought (if that’s not an oxymoron) that can fully map the contours of that reasoning, in any kind of coherently systematic way, except Marxism, which is quite insightful but very tarnished for obvious reasons.
I recall — despite the chasm of time — the great pains that economic textbooks to distinguish so-called “normative” from “positive” analysis, where normative was biased by philosophical or moral values and wasn’t theoretically antiseptic, like economics’ idol, physics, and where “positive” by some strange process of chiarascuro that was deemed to be self-evident, was.
I didn’t question that as an undergraduate. Due mostly to the soporificism of the topic and to my inherent naivete. But I do now.
There really is no such thing as “positive” economic analysis. Any form betrays a bias toward certain values and institutions, which really are quite culturally determined.
I do think there are absolutes, but they are primarily spiritual and religious in nature. Like William Blake said “All religions are one”. But economics is not a religion and when money and monetary institutions are separated by force from universal spiritual values, then all hell breaks loose.
There is no “positive” analysis. It’s all normative, in varying degrees of somnabulation. That’s all I have the capacity for right now, after half a bottle of Syrah. ha ha ah hahahahahahaha hahahahahahah!!!!
Great post.
Still, the government yet again got away with what it wanted to do and there doesn’t seem to be anything that we, the people can do about it.
Geithner was spreading the bullshit really thick on PBS’s Charlie Rose a few days ago. And he came across as more arrogant than ever. I imagine he is getting more arrogant and more full of himself seeing how this stupid nation of flag-waving, red-neck morons are taking all this ass screwing without even a whimper. Yeah, they sure have the “brave” American people conditioned to enjoying anal raping, don’t they?…
Psychoanalystus
Everytime I see this man interviewed, he’s shifty eyed. He’s always looking around like he’s nervous and oh, lying? lol
Bernanke is a liar and a money printer
And speaks volumes with saying nothing.
It’s becoming highly likely that Tim Geithner is really a Republican Mole in the Obama Administration and Obama doesn’t understand the seeds of this CIA inspired effort by the right wing. Getting rid of Larry was not enough.
Timmy is also talking up China’s recent steps allowing the yuan to rise, preparing us all for another Treasury finding that China is not a currency manipulator (despite continuing with hundreds of $billions in foreign reserve accumulations). Nor any mention of Japan’s recent purchases (a mere $60 billion).
The United States of Argentina, from tinfoil hat land to profound truth.