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.