Freedom Line Blog

A good source reports this to me, in his own words which I have shamelessly appropriated:

Here’s the skinny, a part of TARP was the so called TAG program.  What it did was remove the cap on insured deposits without limit as long as there was no interest being paid on the account.  Now tell me who is paying interest bearing checking anymore?  So in other words, TAG now makes the federal taxpayers liable for another 1.4 trillion dollars in deposits.  Like TARP, it was supposed to be a temporary measure to calm bank depositors, but it was extended in Dodd Frank and now the bankers (who love it of course) are racing to get it extended.  The scary part is that a number of Republicans may help the Dems jam it through the Senate next week on a party line vote without amendment.  Pretty ironic that Reid and Schumer think taxes need to go up on people making 250k per year, but they are willing to lift the insurance cap on deposits of a similar size for their buddies in the banking industry and dump the liability of the Treasury.  It stinks.

See this WSJ editorial from August.  It was assumed this thing was dead but it looks very live according to sources in the GOP Senate leadership and Banking Committee.  BTW, worth noting as usual Shelby, who opposed TARP and is Ranking on Banking is opposing it.

Reid may file cloture and move to a vote as early next week.  Republicans, as if is possible, should be ashamed to let this happen and bless it in the midst of the beating they are taking on the Cliff issues and  all their moaning about spending and federal liabilities.

House Speaker John Boehner got himself in hot water last night when he appeared to be saying that people who opposed TARP were knuckle-draggers. I think it is very fair to assume, on close examination, that he did not mean, nor does he believe, that to be the case.

I explain the whole thing here.

The key new thing to report is the clarifying statement I received from the Speaker’s office, which responded with admirable promptness:

“The Speaker said Paul Ryan is a practical conservative, and that Paul Ryan is not a knuckledragger.  He did not say those who opposed TARP are knuckledraggers, and he does not believe TARP opponents are knuckledraggers.  He did not say tea partiers are knuckledraggers, and he does not believe tea partiers are knuckledraggers.  To the contrary, he has enormous respect for the tea party movement, which reflects the will of the American people and their desire for a government that respects our Constitution.  Whether you supported or opposed TARP, we all can agree the crony capitalist philosophy of forcing responsible taxpayers to subsidize irresponsible behavior – perpetuated and perfected under President Obama – has wrecked our economy, and has to end.”

Dave Schnittger

Deputy Chief of Staff

Office of the Speaker

U.S. Treasury Secretary and Tax Cheat Tim Geithner and his minions at Treasury, trying to make the Bush-Obama TARP (and other financial-sector) bailouts look good, are cooking the books in a flagrant manner. That is the upshot of this superb bit of reporting and analysis from the incomparable Jonathan Weil of Bloomberg News. Well worth reading. A sample:

On top of that, there’s the current net cost of the government-sponsored housing financiers Fannie Mae and Freddie Mac, which the Treasury pegged at $151 billion. …[T]he report included a White House budget projection showing the net cost of the Fannie and Freddie conservatorships would fall 81 percent to $28 billion by fiscal 2022. Put another way, the projection envisions record profits at the two companies for years to come….As for the declining Fannie and Freddie cost projections, the Treasury is relying on a forecast that in essence has the two companies generating $123 billion of earnings over the next 10 years. This would be nice, except there’s no basis for believing it will happen. The companies have reported losses every year since 2007. During the previous 10-year period from 1997 to 2006, which included the housing boom, their combined earnings were only $82 billion….

This isn’t fuzzy accounting; it’s deeply dishonest accounting. Weil should not be the only journalist reporting it.

As I note in my new weekly column, out today, President Obama’s State of the Union address on Tuesday night was littered with risible claims, not the least of which was his defense of the hundreds of billions of dollars poured into the financial and auto industries at the height of the nation’s economic crisis (efforts, in fairness, that began with the Bush Administration). Contrary to the president’s rosy recitations, however, the bailouts were not an unimpeachable success. As the AP reports today:

A government watchdog says U.S. taxpayers are still owed $132.9 billion that companies haven’t repaid from the financial bailout, and some of that will never be recovered.

The bailout launched at the height of the financial crisis in September 2008 will continue to exist for years, says a report issued Thursday by Christy Romero, the acting special inspector general for the $700 billion bailout. Some bailout programs, such as the effort to help homeowners avoid foreclosure by reducing mortgage payments, will last as late as 2017, costing the government an additional $51 billion or so.

This report won’t get much attention, simply because of the fact that a majority of the money has been paid back. That fact, however, reveals what may be the most damning legacy of the bailouts’ gonzo economics: the ability to think of a $133 billion shortfall as a rounding error.

City Journal’s Nicole Gelinas describes the Bush-era “TARP” bailout as a massive case of moral hazard.  With the financial sector able to fob off its bad debts to the American taxpayer while suffering almost no consequences, it’s no wonder the jobless rate is not recovering.

The politicians we elect have three choices—the same choices they had four years ago. They can admit that this debt isn’t worth much and allow the financial sector to bear the consequences. They can hope that the Fed tries to use inflation to raise the price of everything else, making the debt seem a lighter burden in comparison. Or they can maintain their silence, letting the financial sector take another half-decade or more to make enough money on new ventures so that it can finally admit what it should have admitted back in the fall of 2007: bad debt is never good. At least the Fed acknowledges this strategy: it says that it’s using “time” to manage toxic securities and “minimize disruption to the financial markets.” But prolonging government control of financial markets just prolongs investors’ uncertainty.

If Congress and President Obama, as well as the candidates who would like to succeed the president in 2013, maintain their silence, people should at least understand that the lousy jobs numbers are no mystery. They are the result of a policy that Washington has willfully chosen. As the Fed notes, the cost of this policy isn’t measured in dollars but in something more precious: time. Washington’s refusal to confront the debt problem is costing millions the most productive years of their lives.

The White House phone bill might be ticking sharply north this month because, lo and behold, it turns out there are more politicians in desperate need of President Obama’s perpetual insistence to “act boldly.”  On the heels of reports that he cajoled German Chancellor Angela Merkel into forsaking her voters and bailing out Greece comes this breathless update: Obama is twisting arms in Spain!

Spain is one of the “PIGS” countries, a group of economic basket cases including Portugal, Ireland, Greece, and Spain.  Like the others, Spain is suffering from extreme budget deficits caused by rampant government spending to prop up unsustainable social welfare programs.  Obama called to convey some tough love:

Mr Obama’s call yesterday to Mr Zapatero added an American voice to European pressure on Spain.

Mr Zapatero has so far shied away from structural reforms opposed by trade unions but is now facing new calls from EU leaders to slash spending again and tackle his country’s economic crisis.

If it’s true that Obama is urging Spain to cut spending, then three cheers for fiscal sanity!  Unfortunately, there are no indications that approach is being seriously considered on this side of the pond.  As proof, the Obama Administration is holding out a curious example for Europeans to follow: the Bush era’s Troubled Asset Relief Program (TARP).

American officials urged that Mr Sarkozy and Mrs Merkel recall the U.S. lesson of 2008-2009 when the Bush administration persuaded a reluctant Congress to approve a massive $700 billion Troubled Asset Relief Program.

While politically unpopular, the U.S. rescue plan convinced markets that authorities were serious about keeping banks afloat.

Or it convinced those who play in the markets that the American government wasn’t serious about letting the invisible hand apply the rules of risk and reward to credit default swaps.  If anything, TARP is a monument to the kind of taxpayer funded subsidy for bad behavior that should be avoided by other countries because it socializes the risk yet personalizes the reward.

If European leaders want to speed the decline in trust for economic “experts” by all means, TARP away – just don’t whine when China buys chunks of real estate for pennies on the Euro.

H/T: Daily Mail (UK)

In an interview with the editorial board of the Arizona Republic, embattled Senator John McCain said that he was “misled by then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.  McCain said the pair assured him that the $700 billion Troubled Asset Relief Program would focus on what was seen as the cause of the financial crisis, the housing meltdown.”

That’s what we thought, too, Senator.  But we weren’t in the room.

It’s nice to see a piece in Time Magazine worthy of linking to. Over the last few years, Time has led the charge of weekly news magazines becoming equal parts liberal opinion journals and People Magazine derivatives. Newsweek isn’t much better (only George Will and Robert Samuelson redeem it). And U.S. News and World Report has become entirely virtual, while simultaneously losing its only compelling columnist (Michael Barone, who’s now with the D.C. Examiner).

But Time’s new issue features a piece called “What’s Still Wrong With Wall Street” by financial journalist Allan Sloan. If you can get past the purple prose of his first few paragraphs (including a breathless passage about the “green shoots” appearing in the cracked driveways of the newly impoverished) and the occasional populist nonsequitur (Mr. Sloan apparently thinks the financial crisis should relieve him of the need to pay overdraft fees), it’s worth your time.

With great analytical clarity, Sloan explains how TARP wasn’t the real bailout (new federal lending standards were); how the bonuses that the public is crowing about aren’t really bonuses; and how it was incompetence much more than greed that drove the financial collapse.  One exemplary passage:

The two divisions at AIG that brought down the firm — financial products and stock-lending — didn’t understand what they were doing. Financial products wrote credit-default swaps — sorry I’m not pausing to explain them, but most eyes would glaze over if I did — that they thought were riskless but turned out to be ultra-risky.

The stock-loan department, AIG’s other disaster, took the cash it got for lending out stock owned by AIG and invested the money in esoteric securities rather than in risk-free Treasuries, the standard practice. The idea was — I’m not kidding — to make an extra one-fifth of 1% in interest. When the esoterica, which the stock-loan folks thought was riskless, crumbled, so did the firm.

It’s an admittedly uneven piece, but the good outweighs the bad.  Read the whole thing here.

The $700 billion Troubled Asset Relief Program (TARP) is set to expire on December 31, and approximately $130 billion remains unspent.  Treasury Secretary Timothy Geithner, however, now wants to keep those unspent billions and convert TARP into a permanent federal bureaucracy.

Has this administration no sense of shame or propriety whatsoever?

The TARP program was dishonestly sold to the American people one year ago as a “temporary” intrusion to keep our financial system afloat until the economic seas calmed.  Markets have long-since stabilized as they naturally do, and an enormous portion of TARP funds either remain unspent or were spent in ways totally unrelated to troubled assets.  Independent auditors also remain unable to verify the program’s success, and the Obama Administration and Pelosi/Reid Congress have us hurtling toward unthinkable levels of deficit and debt.  Despite this, but unsurprisingly to anyone with even a modest understanding of how government constantly erodes our individual freedoms, Geithner & Co. seek to make TARP permanent.

Time for another tea party at Geithner’s office.