Thievery Under the TARP
We are being robbed big-time, but you can't say we haven't been warned. Not after the release Tuesday of a scathing report by the Treasury Department's special inspector general, who charged that the aptly named Troubled Asset Relief Fund bailout program is rife with mismanagement and potential for fraud. The IG's office already has opened 20 criminal fraud investigations into the $700 billion program, which is now well on its way to a $3 trillion obligation, and the IG predicts many more are coming.
Special Inspector General Neil M. Barofsky charged that the TARP program from its inception was designed to trust the Wall Street recipients of the bailout funds to act responsibly on their own, without accountability to the government that gave them the money.
He pointed to the example of AIG, which has acted as a conduit of funds to the banks it had insured without being required to tell the government what it is doing: "Failure to impose this requirement with respect to the injection of yet another $30 billion into AIG would not only be a failure of oversight, but could call into question the credibility of the government's efforts."
AIG is just one example in a bailout that has left the financial conglomerates unsupervised as they spend taxpayer money in what the report termed a government program of "unprecedented scope, scale and complexity," putting the public and the Treasury Department in the dark as to how the money is being used by the very tycoons who got us into this mess. "The American people have a right to know how their tax dollars are being used," Barofsky wrote in the report, which sharply criticized the government for failing to hold financial institutions accountable.
For all of its criticism of the original program, designed by the Bush administration, the report was equally severe in denouncing the Obama administration's plan to partner with hedge funds and other private capital groups to buy up the "toxic" holdings of the banks. Charging that the plan carries "significant fraud risks," the inspector general's report pointed out that almost all of the risk in this new trillion-dollar plan is being borne by the taxpayers. The so-called private investors would be able to put up money they borrowed from the Fed through "nonrecourse" loans, meaning if the toxic assets purchased prove too toxic and the scheme failed, the private investors could just walk away without repaying the Fed for those loans.
The reason those loans may prove even more toxic than expected and the price paid by this government-underwritten partnership far too high is that the government is purchasing the most suspect of the banks' mortgage packages. In addition, the plan is to accept at face value the evaluation of those packages by the very same credit-rating firms whose absurdly wrong estimates of the dollar worth of these securities helped create the problem that now haunts the world's economy. "Arguably, the wholesale failure of the credit rating agencies to rate adequately such securities is at the heart of the securitization market collapse, if not the primary cause of the current credit crisis," the report found.
As with the entire banking bailout, the new plan of Obama's treasury secretary, Timothy Geithner, is likely to enrich the very folks who impoverished the rest of us, as the report notes: "The significant government-financed leverage presents a great incentive for collusion between the buyer and seller of the asset, or the buyer and other buyers, whereby, once again, the taxpayer takes a significant loss while others profit."
At the heart of this potentially massive fraud was the original decision of Henry Paulson, President Bush's treasury secretary and a former Goldman Sachs chairman, to not require the recipients of the bailout, such as his old firm, to account for how the money was spent. Unfortunately, President Obama's administration continued that practice.
The only difference is that the amount of public money being put at risk is now far greater, and the hedge funds, which are totally unregulated, have been brought in as the central players. One of the largest of those hedge funds, D.E. Shaw, carried Obama's top economic adviser, Lawrence Summers, on its payroll to the tune of $5.2 million last year. He may have reason to trust these secretive enterprises that operate beyond the law, but the public does not.
Robert Scheer is editor in chief of Truthdig and author of The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America.
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It is still difficult to express opinions on HuffPo that don't jive with the moderators or those who find Obama flawless and I tried posting here two days ago, but here goes....once more. Everything you (Scheer) have written about TARP seems borne out by the actual facts and events of the past six months. There is still no accountability, nor was any asked by Hank Paulson, even now under a new administration and a supposed new beginning, change, more transparency, is lacking. Now what the Bush administration did to stop the financial bleeding is even cautiously praised. Geithner and Summers have made no changes in the way banks and financial institutions are receiving money....except in a few instances when there are objections to CEO pay; but that is fairly recent. When this economy tanks....and that is the word I used in my original post....and when it is apparent that the taxpayers are going to fit the bill for the corporate interests for five or six years or...???, the oligarchy will be well established. Obama won't need our votes...and probably wouldn't get them either, but democracy in the United States will be vague memory.
I knew it! TARP is about putting out the fire with gasoline!
There is one component to any toxic asset program the public must demand that the government include: TOUGH penalties for any fraud, waste, etc. One strike and you're out! Financial hoodlums will think twice if they are going to be put on the sidelines and out of the game.
See them scurry.
See them burrow.
See them bustle.
See them hustle.
See the fearful cling to anything that provides another moment to breathe.
See the broken get pissed off and go on a rampage, causing others to bleed.
See a system so out of whack it feeds on life.
See a nation of individuals come to realize individual strife.
See them struggle through the day and toil through the night.
See life unravel.
See judges bang their gavels in civil court.
See SUV’s and Mercedes with the super sport package.
See people live decades carrying mental luggage and spiritual baggage.
See stress levels soar.
See the pimps.
See the whores.
See college bound kids freak out over SAT and ACT scores.
See delusion.
See confusion.
See distortion.
See contortion of principles and ethics as greed is pursued.
See a nation caught in the grip of the debt and corruption blues.
See ingrates, and arrogant fakes proclaiming greatness while they function crookedly.
See the man or woman in the mirror, see that for every I there is a me, and for every us, there is a we.
See the forest beyond the trees.
We can be better, oh yes we can weather this storm.
But like anything that is dead it requires we be reborn.
America must rise from the dust of its glorious and not so glorious past.
What emerges must be strong, honest, unified, invigorated, empathetic, ready for the world...and built to last.
Barofsky's myriad investigations into TARP misdeeds, plus his warnings on the TALF, the PIPP, etc. have radically changed the landscape of Obama's bank strategy.
Originally I thought the PIPP program would work and my complaint was that the plan was not conceived from the start with small investor participation in mind. But with Barofsky's revelations, it's clear that the "control fraud" (William Black's very fine phrase), habits of the large players in any PIPP program would insure massive gaming of this plan. If retail investors and/or pension funds participated in the plan, they would come out losers, I'm convinced.
I think Obama has to bite the bullet, disassemble and reassemble a few of the largest bad banks, and park the toxic assets on the national balance sheet in the interim.
The simple reality is that the banks are an untouchable fifth estate--too big to fail and playing the rest of us for patsies, biding their time. But the entire industry is at overcapacity, and unless it is restructured and lending is resumed, the economy is going to deteriorate further.
Call it nationalization, or whatever, that is no longer the problem. The problem is that the financial engineering between Geithner and Bernanke is going to fail, and unless Obama steps in and changes course, he is going to have a failed term on his hands.
After reading this (and considering a lot of the bailout news we've heard lately) I feel like I've been right all along, and this whole "financial disaster" was one last Bush gift to his constituents (the rich businesses).
It seems like his administration was one long give away to corporations at the expense of every American below a certain tax bracket. This bailout had perfect timing and, quite frankly, rendered the election rather moot. It didn't matter who the next President would be, they would HAVE TO give large sums of money to the rich people because they were "too big to fail."
Look now, it turns out that Bush's folks wrote all kinds of loopholes into TARP which turned it into a blank check. Bush's constituency likes free money. It also turns out that some of the bailed out companies are now paying back the money (some crisis-- I want to see the books).
With allegations of insider trading it doesn't take a far leap to imagine four CEOs getting together with Cheney or Bush and deciding to tank the whole thing (imagine what their profit margins will be this year- - lots of profit with no money down). It's always more fun to gamble with the house's money. We need a Vinny the PitBoss to dangle these hucksters out a window.
"It didn't matter who the next President would be, they would HAVE TO give large sums of money to the rich people because they were "too big to fail.""
Obama has a choice. He doesn't have to give any additional money to the thieves. He could break up the big banks and or temporarily nationalize them. He has chosen not to do so. Why are so many so called progressives making excuses for Obama as he robs working people to give money to the oligarchs.
The reasons many progressives don't see that Obama is helping the banks steal, is because he has paid lip service to some progressive demands, such as climate change, science, education, and foreign policy. This leads some progressives to believe that Obama is on the right track and will soon solve the bank problems. Other progressives who are smarter and more well informed know exactly what is going on and know that Obama is not stopping the criminal bankers from swindling us. We need to continue exposing their lies and crimes, so that all may see that we are being ruled by a fascist oligarchy pretending to be a democracy.
Partnering with pyromaniacs to extinguish forest fires they started will inevitably lead to more forest fires and dead trees.
Blogging is great fun and full of marvelous ideas but if the blogosphere is not used to implement these ideas then nothing lasting or of value is achieved.
At this point in time it is obvious that the U.S. Government is going to continue rewarding those trillion dollar swindlers that caused this worldwide financial meltdown with trillions more dollars of our tax money instead of throwing these swindlers in jail.
It is also obvious that our useless, corrupt legal systems and regulatory systems will not do anything to bring these swindlers to justice.
What the American people need now is a comprehensive SWINDLERS LIST containing the names, addresses and country clubs of all the investment/banking CEO's, executive boards, hedge, swap, derivatives and securitization scammers who stole those trillions of dollars.
So all you bloggers out there start investigating where those swindlers are in your areas and put that information on the blogosphere so we can compile a complete list because there were thousands of people involved in this corruption.
After the list is completed we the people will organize across the land demonstrations and pickets against these swindlers since they are now very wealthy and living off the savings and retirement funds they stole from hardworking Americans.
And our theme song will be, "Making a list and checking it twice to find out who has been naughty or nice.???!!!"
We should block the roads to their mansions and not leave until they give the money back. If they don't, they'll starve to death. We need to start putting some real pressure on the government. Just protesting peacefully won't do anymore. The largest peaceful protest in world history right before the war in Iraq did absolutely nothing to stop the war from starting.
I and many others voted for Obama because we trusted his "common sense" judgment. I must say that he has let us down by entrusting Summers and Geithner to do what they will, which is protect their friends at all cost (taxpayer cost, that is). Common sense dictates that too big to fail is just plain too big, and receivership is the only fair and socially responsible solution. Breaking up of big banks and corporations solves several problems at once - not only would it reduce their eventual potential impact on the economy but minimize the extent and impact of their lobbying (and funding of bought and paid for political campaigns), reduce their extravagant pay and bonuses by increasing competition amongst them, and believe it or not, create jobs for average Americans, since more, smaller companies would eliminate the "efficiencies" that funnel profits to the top of the food chain. Instead what we're getting is a very expensive propping up of the companies and industry leaders that let us down. I can not fathom what lead Obama to this choice, but my gut tells me that he, like all the rest of our politicians, are owned by the rich and powerful, and will do their bidding, not ours. The kind of change we really need is not being seriously addressed - elimination of corporate lobbying, campaign contributions and term limits.
I agree, elimination of corporate lobbying and campaign contributions would solve lots of our problems. Most of those problems were caused by these things in the first place.
It is great to read a Scheer column again. I stopped reading the L.A. Times when they took away his column.
This shouldn't be a surprise to anyone. Bush and Paulson were throwing money at AIG and the banks with no controls or even stipulations written into it, just the way they took billions to Iraq and cannot account for how it was spent.
Thieves, liars and cheats are always going to be that, albeit in an expensive suit.
The scandal is no longer just with what these thieves are doing but with our incapacity to properly investigate and prosecute clearly criminal behavior. Oligarchic government with the manufactured consent of its victims. We ought to try democracy for a change. ;-)
The victims are not consenting. They have no idea they are being screwed over. If they did, there would be riots right now. They think we still live in a democracy.
Mr. Scheer, this is the reason, and I think you'll agree with me, that these crooks shouldn't have been "bailed" out in the first place, they should be in jail. Most people still don't understand how the banksters got us into this mess. Even the banksters didn't completely understand the financial products they sold(if they did, they are crooks). The President needs to fire some people(Geithner, Summers first) and expose this mess to the citizens, it would be ugly, but at least the truth would come out and we could move on. Doubt it happens, and we will continue a back door sleazy and expensive proping up of these failed institutions. Someone said it a while ago, "we need to make banking and investing boring again", let's get this mess behind us first and let's move forward with a clean sheet.
"The significant government-financed leverage presents a great incentive for collusion between the buyer and seller of the asset, or the buyer and other buyers, whereby, once again, the taxpayer takes a significant loss while others profit."
The above is being massively overplayed and distorted.
sonofsamph1c - it isn't being overplayed or distorted it is happening right now and it is a HUGE INSULT to the American Tax Payer.
I wonder what Candidate Obama would say about it... especially when he campaigned heavily on Transparency and Accountability.
"I voted for Obama and all I got was this lousy bailout."
It can't be happening right now. The program hasn't started.
Say a banking institution makes fraudulent application for TARP funds of one billion and succeeds - doesn't meet the guidelines, purposefully lies, gets the money anyway.
Great heist, only problem, the fraudster still has to pay it back plus interest and whatever else is required.
Did Eliot Ness ever arrest a bank robber who was making periodic payments of principal and interest on the loot? I don't think so. Keystone Cops? Could be.
The loans are NON-RECOURSE... they owe nothing if they go broke...
That is what the scam is all about, here's the how to guide for dummies:
1. Bad Bank A creates a shell corporation, call it Bad Shell B
2. Bad Bank A funds in some money and/or have american tax payers (dumb investors) "INVEST???" in the mutual fund with Bad Shell B to buy toxic assets.
3. Bad Bank A sells an asset that is worth $0.00, put prices it at $100M.
4. Bad Shell B takes a loan from the treasury and any mutual fund money from dumb investors and buys the worthless asset for $100M.
5. Bad Bank A gets the money, writes off the asset and has $100M where it should have zero.
6. Bad Shell B is stuck with the bad asset and will soon after fold, since the loan is NON-RECOURSE there is nobody to go after and the tax payer gets stuck with the bill.
Obama and Geithner aren't dumb they know that the banks are going to do this. And yet they are looking the other way... In fact they are looking at ways to create SPVs to fund that then gives the money to the banks. That way the SPV is limited by the executive comp, but the banks aren't.
I don't think Candidate Obama would approve of what President Obama is doing.
"I voted for Obama and all I got was this lousy bailout"
You're talking about PPiP. That is the plan with non-recourse loans.
TARP is recourse - double backstopped.
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