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Source link: http://archive.mises.org/10873/year-after-tarp-700-billion-down-the-drain/

Year After TARP: $700 Billion Down the Drain

October 20, 2009 by

TARP money wasn’t used to buy toxic assets. TARP money was instead used to buy preferred stock in banks, shoring up their balance sheets by giving the federal government part ownership of the banks. FULL ARTICLE by Randall Holcombe

{ 14 comments }

Justin DeWind October 20, 2009 at 9:21 am

I never saw this coming. How could the TARP funds not work?

Doug October 20, 2009 at 11:18 am

I just think we need to give it more time :)

I expect as a partial owner via Gov’t ownership of a car company, insurance company and several banks that I will eventually get my perks. Maybe a company car and better rates for insurance and loans.

Friedrich October 20, 2009 at 11:26 am

Well no suprise, I guess I was one of the few having read this “papers”. It was devastating. I wrote about it here:
http://fdominicus.blogspot.com/2009/05/lugen-und-statistiken.html
here:

http://fdominicus.blogspot.com/2008/09/it-still-can-get-worse.html
http://fdominicus.blogspot.com/2008/09/quite-funny.html
and over and over again.

I wrote about the same “faults” done by the candidates for the presidentship
http://fdominicus.blogspot.com/2008/09/watch-closely-what-candidates-do.html

I’m sorry that I cited myself that often, but I wrote it all there and I do not thing it’ll get better here while writing it up again here.

greg October 20, 2009 at 11:39 am

When I read the headlines, I was hoping for a little more information. Maybe you should have asked the accounting department to give you a balance sheet showing all the government’s liabilities and assets for this program. As well as to throw in an income statement showing all the interest that these banks are paying the government.

Matt Blackman October 20, 2009 at 11:55 am

How can doing more of what got us into trouble in the first place, work as the solution to the problem?

Here is a quote that says it all in my opinion…

“You cannot spend your way out of recession or borrow your way out of debt.” — Daniel Hannan, Member of the European Parliament

Ohhh Henry October 20, 2009 at 12:35 pm

“You cannot spend your way out of recession or borrow your way out of debt.”

Hence, Gordon Brown’s nearly hysterical begging the other day to slap a carbon tax on everything that moves. He’s aware of (A) and (B) above, so he’d like to try Plan (C) taxing his way out of recession and debt. A mug’s game in the long run, but a great opportunity to filch away people’s un-inflated savings and income in the short term.

Walt D. October 20, 2009 at 1:06 pm

According to Paul Krugman, all we need is more money – a few more trillion, and a bigger drain – like an Army Corp of Engineers levee!

mezentian gate October 20, 2009 at 2:56 pm

the Maldives wants the world to pay for capping carbon emissions, seemingly to stop the planet from warming and the sea level from rising, thus so it can go on being a tourists’ Mecca .. unlike the devout who seek the Hajj as the fulfilment of their faith, the Maldivian (?) people think their destiny lies in having others pay to solve their situation…

does this sound familiar?

K Ackermann October 20, 2009 at 6:35 pm

That picture is worth $700b.

TARP was the greatest fraud ever perpetrated.

It was nothing more or less than a manifestation of the oligarchy. The fact that it was given with no reporting requirements, to me, shows it to be even worse than fraud: it was hubris.

The financial industry has larceny baked into the business plan. What makes more sense:

AIG was caught flat-footed at a bad time in the market, and they just happened to be systemically important at this time.

or…

AIG saw the writing on the wall 4 years ago with regards to their business cash flow and debt burdens. Their strategy became one that embraced failure. They actually set out to fail, and succeeded. They had to fail so spectacularly that it would crash the system.

Their core business is risk assessment. Is it really plausible that they would not hedge their massive book? It’s not even in the realm of credible. It had to be deliberate.

Golden Sacks admitted that they knew AIG were exposed. Would you purchase insurance from a company you knew could not pay out? Why would you?

Here is a very interesting piece on the possible existence of AIG side-letters that essentially were handshakes that the purchaser of CDS protection written by AIG knew they were not going to get paid. The purchaser only bought the protection to fulfill capital requirements that allowed them to lever up more.

Because these side-letters can exist or not exist depending on the circumstances, they are essentially a two-headed coin. With AIG suddenly inserted in the chain of business everywhere, you can bet those letters disappear when they threaten failure. The government better help out, because all those institutions that levered up on their protection would suddenly find themselves short a whole lot of capital.

It is inconceivable that this was not done intentionally, possibly with foreknowledge by the government who is more than happy to aid and abet criminal activities in many industries, including their own.

Jay October 20, 2009 at 7:24 pm

“The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and the State will have to take the road which will eventually lead to communism.”

— Karl Marx, Das Kapital (1867)

Me October 20, 2009 at 11:50 pm

I’d say that TARP worked just as planned. A bunch of crooks conned a nation of chumps out of $700 billion and got away with it. How much more successful than that can you be?

C.J. October 21, 2009 at 8:43 am

An interesting question is why TARP failed. The original intent of the program was to buy toxic assets to shore up bank balance sheets and jump-start interbank lending. For any bank considering participating, selling toxic assets into TARP would have meant setting the market. The first participant would set the bottom of the toxic asset “market” and thereby be open to complaints from shareholders about failing to maximize firm value because they sold at the lowest price.

Further, any company that had participated in TARP by selling only some percentage of toxic assets into the program would have had to then alter its accounting for its securities portfolio–in effect, recognizing paper losses in the entire portfolio. Why? Because that’s what the regulators say they have to do. Loan-loss reserves would have required massive additional injections, for which banks had made no plans. Why? For the largest among them, Bernanke and Paulson had all but guaranteed their survival.

It all comes back to intense regulation of our financial system. Intervention breeds more intervention…and now many banks are little more than arms of Congress, the Federal Reserve, and Treasury.

Pete October 21, 2009 at 10:08 pm

To be fair, some banks paid the money back with interest, and bought back the warrants.

Tracy Saboe October 22, 2009 at 12:23 am

You guys don’t get it.

They just didn’t hit it hard and fast enough.

The Federal government needed to spend about $100 Quadrillion to fix this it was so bad. They were so smug they thought they could fix it with a mere 700 Billion. Who were they kidding.

Tracy

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