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Much has been written about the Troubled Asset Relief Program or TARP.  Little to none of it has been good.  Some of this criticism is warranted but some of it falls off the mark.  Regardless of the opinion the TARP program is still desperately needed given the US financial system's overall condition.  In addition, the program has been a success for one simple reason: the US financial system has not collapsed.

First, let's start with a basic explanation of why the US financial system is so important.  The financial system is an intermediary between individuals and corporations and between corporations and other corporations.  Banks, insurance companies, mutual funds - all manner of financial companies -- pool many small deposits, premiums and investments into larger pools which are then lent out to business in the form of loans and investments.  This in turn provides a steady line of credit to loan out to business and consumers to help them expand.  In other words, the modern financial intermediary system is an absolute necessity to the US economy; if it collapses -- or if periods of extreme stress prevent it from operating efficiently -- the economy grinds to a halt.

For the last year and a half the Federal Reserve has done everything it can to keep the US financial system working and operating -- even if on life support.  Essentially Bernanke is attempting to prevent a banking panic similar to 1929-1933 from collapsing the economy.  As Milton Friendman outlines in his book A Monetary History of the United States a central reason for the Great Depression was a series of financial shocks in the early 1930s which essentially froze the credit system for an extended period of time.  This is a primary reason the US economy contracted a total of 25% for the years 1929 - 1933.  As financial events unfolded over the last few years, the possibility of systemic failure was high.  As a result, the Federal Reserve has taken unprecedented actions.  In addition, Congress got in the act by approving the TARP program  The reasons for this approval are simple: the US financial system was under extreme stress which continues to this day.  Consider the following:

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Above is a chart of the financial sector ETF.  In the last few years it has lost almost 75% of its value.  In other words, investors are betting on severe problems -- at best.  In fact, this is a chart that assumes at least one major bankruptcy if not more.  In addition, none of these companies can raise capital given their depressed stock prices.  As a result, they need other sources of equity financing.

In addition, consider these charts from the latest Quarterly Banking Profile from the FDIC:

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24% of all financial institutions were unprofitable in the third quarter of 2008.  That's higher than during the S&L crisis.

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Earnings weakness has been a problem for three of the last four quarters.

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The growth in troubled loans has remained high for the last year.

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2008 was a record year for failed bank assets -- and that includes the S&L crisis of the late 1980s.

And consider this executive summary from the same report.

Troubled assets continued to mount at insured commercial banks and savings institutions in the third quarter of 2008, placing a growing burden on industry earnings. Expenses for credit losses topped $50 billion for a second consecutive quarter, absorbing one-third of the industry's net operating revenue (net interest income plus total noninterest income). Third quarter net income totaled $1.7 billion, a decline of $27.0 billion (94.0 percent) from the third quarter of 2007. The industry's quarterly return on assets (ROA) fell to 0.05 percent, compared to 0.92 percent a year earlier. This is the second-lowest quarterly ROA reported by the industry in the past 18 years. Evidence of a deteriorating operating environment was widespread. A majority of institutions (58.4 percent) reported year-over-year declines in quarterly net income, and an even larger proportion (64.0 percent) had lower quarterly ROAs. The erosion in profitability has thus far been greater for larger institutions. The median ROA at institutions with assets greater than $1 billion has fallen from 1.03 percent to 0.56 percent since the third quarter of 2007, while at community banks (institutions with assets less than $1 billion) the median ROA has declined from 0.97 percent to 0.72 percent. Almost one in every four institutions (24.1 percent) reported a net loss for the quarter, the highest percentage in any quarter since the fourth quarter of 1990, and the highest percentage in a third quarter in the 24 years that all insured institutions have reported quarterly earnings.

The above summary paints a picture of an industry under extreme stress.  For further points regarding the severity of the current financial situation, see this article which notes that anecdotal information in the Beige Book and the Senior Lender's Survey over the last year highlights an industry in crisis.  If this industry were not central to the modern economy, the policy response would be different.  But because of the financial systems central role in the economy something must be done.

That brings us to what happened with the first TARP funds.  First, here is a link to a PDF of all the institutions that received funds.  In other words, we know who received the money.  Now the central question is what did they do with the money? That appears to be where the real problems arise.

Let's look at a two key paragraph from a GAO report on TARP:

It is unclear how OFS and the regulators will monitor participating institutions' use of the capital investments.  The standard agreement between the Treasury and the participating institutions includes a number of provisions, some in the recitals section at the beginning of the agreements and others that are detailed in the body of the agreement.  The recitals refer to the participating institutions future actions in general terms -- for example, that "the company agrees to expand the flow of credit to US consumers and businesses on competitive terms" and "agrees to work diligently under existing programs, to modify the terms of residential mortgages."  Treasury and regulators have publicly stated that they expect the institutions to use the funds in a manner consistent with the goals of the program, which include both the expansion of the flow of credit and the modification of the terms of residential mortgages.  But it is unclear how OFS and the banking regulators will monitor how participating institutions are using the capital investments and whether these goals are being met.  The standard agreement between Treasury and the participating institutions does not require that these institutions track or report how they plan to use, or do use, their capital investments.

We spoke with representatives of the eight large institutions that initially received funds under the CPP, and they told us that their institutions intended to use the funds in a manner consistent with the goals of CPP.  Generally, the institutions stated that CPP capital would not be viewed differently from their other capital -- that is, the additional capital would be used to strengthen their capital bases, make business investments and acquisitions and lend to individuals and businesses.  With the exception of two institutions, institution officials noted that money is fungible and that they did not intend to track or report CPP capital separately.

The contracts do not contain specific terms but instead use general terms and concepts.  In other words, this is really poor contract drafting.  That does not mean these are fatal flaws.   I would argue that assuming the recitals (which are placed at the beginning of a contract to provide a general context) are fairly clear, the recipients don't have nearly as much leeway as the press about this program would imply.  The bottom line is the program was put in place to bail-out financial institutions, allowing them to remain viable.  For an institution turn around and argue "we didn't think the money was for that" strains credulity.  The second paragraph from the GAO report cited above indicates the financial players are aware of the intention of these injections.  This means all the parties are on the same page.

It's also important to remember the financial situation these institutions are in as expressed in the FDIC report above.  Simply put, these institutions don't have a lot of options with what to do with the money.  Loans are going bad at fast rates, loan loss reserves are increasing, and revenue is falling like a stone.  Simply put, the money can realistically only go one of a few places -- Tier 1 capital or loan loss reserves.  And given that the government's preferred shares are classified as Tier 1 capital on the institution's balance sheets, physically placing the money received in Tier 1 capital makes the most sense (or more accurately, using an appropriate accounting entry).

All that being said, there is a lack of credibility on the part of all the players here.  Financial institutions' lack of prudence got us into this mess and Congress has shown a remarkable ability to not think anything through beyond the next news cycle.  To solve the problem, the parties should do the following.

Add an addendum to all the contracts which states the money can go for one of three purposes:

1.) Pure Tier 1 capital

2.) Loan loss reserves, or

3.) Purchasing distressed institutions

If all parties agree then there is no issue form a legal perspective.  Considering most of these institutions will probably need further financial help from the government it's in their interest to agree.  In addition, future TARP contracts should have these provisions clearly stated at the beginning of the contract and then within the contract's terms.

In addition, it should also be stated the money will not go for any other purposes, including but not limited to dividends, bonuses, executive pay etc...  Again -- I'm assuming the contracts already signed aren't specific enough in this regard.

One final point.  The GAO report makes a very prudent observation.  This program is a mere 60 days old.  It is foolish to expect perfect execution -- especially considering the severity of the problem and the complexity of the solution.  That's not to say mistakes should be tolerated.  But mistakes should not be over-reacted to either.

My guess is that much of the anger over TARP has as much to do with how we got here rather than what is actually happening with the program.  Put another way, there is understandable anger about the stupidity that has cost the US economy dearly over the last year.  That anger is understandable.  A perfect storm of lack of regulatory enforcement, greed and outright stupidity combined to place the US in the worst financial situation since the early parts of the Great Depression.

However, I would caution that the anger be stored away from the current discussion and instead brought out when we discuss reform which will be forthcoming.  Right now the goal is to keep the economy moving -- or, perhaps more precisely, to keep it from falling off a cliff.  It's a bit like lecturing a drunk driver while he's in the emergency room; yes, he needs to be dealt with, but it's more important at that time to keep him alive.  That's what we have to do right now -- keep the economy alive.

Originally posted to bonddad on Mon Jan 19, 2009 at 04:38 AM PST.

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Comment Preferences

  •  May I add (119+ / 0-)

    that it's often not noted that the TARP money is not free; in fact, in the current climate it's somewhat expensive.  From a diary I posted last week:

    A QFI [Qualified Financial Institution] must pay 5% dividends to the Treasury for the first five years the preferred stock is in existence; thereafter, it must pay 9%.  In the first three years, the QFI can only redeem the Treasury's shares by recapitalizing, that is, selling new stock to the public.  After three years, the bank may instead pay back the Treasury directly.  If the QFI fails to pay dividends to the Treasury, it must suspend all dividend payments on other stock.  If their failure extends to six payments, they must hand over two director positions to the Treasury.

    The dividend is the critical piece.  Remember the reason the bank pays you interest on a Certificate of Deposit?  Right; it's because the bank plans to lend that money out at a higher rate.  Banking 101.  So what must a bank do with the TARP money?  Legally, whatever they feel like; that's what we're all railing against.  As a practical matter, however, they have only two choices.  One is to use it to buttress against loan losses; the other is to loan it out.

    "What we have here is a failure to communicate."

    by mspicata on Mon Jan 19, 2009 at 04:48:16 AM PST

  •  You always claify confusion, Bonddad. In this (11+ / 0-)

    case, I'm still oonfused, and yes, angry.

    Like everyone else, I want to know that there will be serious conditions for any more monies going to these greedy bastards.

    "I am my own forerunner"

    by Cassandra77 on Mon Jan 19, 2009 at 04:49:23 AM PST

  •  Transparency issues (32+ / 0-)

    My guess is that much of the anger over TARP has as much to do with how we got here rather than what is actually happening with the program.

    It really doesn't help when no one knows where this money is going or for what purposes. That's a cloud hanging over every move they make.

    Fed Vice Chair Donald Kohn testified before the Financial Services Committee today, along with John Bovenzi of the FDIC. The Fed's balance sheet has expanded by $1.2 trillion since September 1. W...
    Fed Vice Chair Donald Kohn testified before the Financial Services Committee today, along with John Bovenzi of the FDIC. The Fed's balance sheet has expanded by $1.2 trillion since September 1. Where did the money go? Kohn wouldn't say.

    Here we are now Entertain us I feel stupid and contagious

    by Scarce on Mon Jan 19, 2009 at 04:53:11 AM PST

  •  Let me ask a question... (11+ / 0-)

    Over at a different blog - The Automatic Earth, they make the argument that the total amount of bad debt is likely to be in the neighborhood of 25 Trillion, and they argue that bailing out a banking system with this much bad debt is essentially futile.

    So I guess my question to you is, how much total bad debt is there likely to be out there?

  •  Anger over TARP (62+ / 0-)

    I can tell you why I'm angry over TARP.  Part of it IS because I'm angry about how we got here, but it's much bigger than that.

    I am angry because there is no accountability.  The people in charge of these businesses have shown incredibly poor performance of their duties.  Not only are they not being fired for this, they continue to be treated as subject-matter-experts when it comes to the decisions being made.  They continue to make big salaries, for the most part, and congress acts like it's perfectly reasonable to work with these people.

    If I had done, in my job, what these people have done in theirs, I'd not only be fired, but probably would be sued as well.

    I am angry because there's no transparency.  There is some unknown bundle of dirty diapers still lurking in these businesses.  It's about time someone opened the windows and let in some fresh air.  Does anyone even know how much bad paper is left out there?  

    We have basically been told that we MUST prop up the financial sector, and that if we just throw a lot of money at totally incompetent managers for businesses with unknown and possibly vast liabilities, everything will be ok.

    I am not disputing that a healthy financial sector is required, but without a full audit of the businesses and without getting competent management in place, it seems as though there's an assumption that we've all just fallen off the turnip truck.

    That's what angers me about TARP.

  •  What I am finding (32+ / 0-)

    extremely confusing is this disconnect (this is how I've read the reports in the NY Times): (1) the banks are "too big to fail", thus we must shovel money at the banks to keep them from failing; (2) the money is going not to "sick" banks, but to "healthy" banks, which is using the money to buy the "sick" banks.  Thus, the "too big to fail" banks are becoming bigger.

    WTF?  Why are we giving the money to the healthy banks, rather than shoring up the sick ones? Shouldn't the $$$ be used to discourage the financial institutions from becoming even more "too big to fail"?

  •  Unfortunately.... (5+ / 0-)

    ...some times folks around here only want to know whether it was POLITICALLY necessary. So they (la-la-la-la) can't hear you.

    "Watch what you watchin'. Fox keeps feeding us toxins. Stop sleeping, start thinking outside of the box and unplug from The Matrix doctrine." -Nas

    by malharden on Mon Jan 19, 2009 at 05:00:23 AM PST

  •  oh, blind faith. (30+ / 0-)

    I am still concerned.  I agree with almost everything you say here, but I can't make the leap that

    "the program has been a success for one simple reason: the US financial system has not collapsed."

    This strikes me as the same logic as the following: (DISCLAIMER: I am NOT equating you to Bush, I am saying this is the same stuff we are typically sold by politicians)

    warning: from fox news

    "There is legitimate debate about many of these decisions.  But there can be little debate about the results. America has gone more than seven years without another terrorist attack on our soil."

    In other words, "shut up and be appreciative."  Although in either case I agree, no terrorists and no dead economy, that simply cannot whitewash the methods.  In particular, if banks don't report their specific usage of TARP funds, I am unwilling to "take their word for it" that the money is being put to good use.  There is no evidence the excesses of the financial sector have been chastened by the collapse.

    For years, the financial industry has been making short-sighted decisions for the sake of personal wealth, in many cases disregarding dissenting voices that did see the foolishness of their practices.  With no wage restrictions (as with auto), no accountability, not even any reporting, who's to say that TARP is even having any effect on the economy?

  •  There is a lack of trust and confidence in the (7+ / 0-)

    market.  For instance, banks are reluctant to lend to one another because they are not sure or confident that they will be paid back mostly because they don't know what toxic assets they other has on its books.  Banks wont lend to consumers because they dont have confidence or believe it is too risky right now.

    Recapitalizing the banks doesn't not address the underlying problem of the lack of trust and confidence.  You can provide all the liquidity in the world and it wont matter.

    RebelCapitalist - Financial Information for the Rest of Us.

    by dennisk on Mon Jan 19, 2009 at 05:15:07 AM PST

  •  I think TARP would have have been more effective (1+ / 0-)
    Recommended by:
    Econaut

    ... if Congress had been able to pass it on the first vote.  A great deal of damage was done to the markets by the uncertainty that was created that TARP failed on the first vote.  I believe that the failed vote was a psychological inflection point; we were already in a crisis, but I recall a panic in the wake of that vote because markets were in freefall, and for a day or two, it did not appear that any government action to help financial institutions was forthcoming at all.

    •  No way- lots of good in the second TARP (2+ / 0-)
      Recommended by:
      wader, freesia

      Barely noticed here, but the extension of the 30% tax credit for solar and other renewable power was one good thing that came out of the TARP give away to rich bankers- it was not part of the original three page holdup note from CRIMINAL BUSH/Paulson.

    •  ...or if it never passed at all. (6+ / 0-)

      The markets rose considerably after the first misdirected redistribution of wealth failed.  For a moment it looked like Congress was actually doing the job of representing the people and that the markets would have to (and probably would have been able to) figure out how to fix their own problems.

      This is a case of abusive behavior by addicts where the high comes from unearned profit instead of smack.  The heavy users are the financial institutions, the small fry are our elected officials, the wanna-be's are the consumer junkies taking out multiple mortgages to buy jet-ski's and lease big BMW's.  Really they are no better than crack heads who steal their mother's jewelry to pay for the next couple of highs.

      They all allowed the economy to overheat through easy credit and artificially inflated value.  Bonddad was pointing this out all along, why has his tone has changed now?

      So suddenly the fix is gone and it looks like they will have to go cold turkey.  Well in steps the Senate to provide a new line, open a new vein, and the circle of addiction continues.  So instead of getting healthy the junkies stay strung out, and if the pain of reality starts to seep back into their world they can just crawl back to the TARP funds for another hit.

  •  Reform is forthcoming? (11+ / 0-)

    I'll believe that when I see it.

    St. Ronnie was an asshole.

    by manwithnoname on Mon Jan 19, 2009 at 05:16:32 AM PST

  •  What about just taking the bad assets (1+ / 0-)
    Recommended by:
    LI Mike

    off of the bank balance sheets with a new federal "bad asset" bank, and using the money to freeze foreclosures and guarantee mortgages that are at risk?

    •  asdf (4+ / 0-)
      Recommended by:
      wader, terrypinder, nyc in exile, Econaut

      Good idea in theory, bad idea in practice.

      Government sets up bad asset bank (BAB).  BAB goes to banks and says, "we will by your bad assets."  But, because these assets are bad assets, they are valued at incredibly low levels.  This will force banks to take huge losses on most assets.

      The only really way for that program to work -- that is, to get banks to sell the assets -- is to pay more than fair market value for them.

      "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

      by bonddad on Mon Jan 19, 2009 at 05:23:26 AM PST

      [ Parent ]

      •  Wasn't this the first justification for TARP (3+ / 0-)
        Recommended by:
        theran, wader, PsychoSavannah

        and isn't the BAB gaining the most traction now?  Certainly the assets would be bought above their market value, that's the whole point.  Whether that's fair or not is irrelevant, but my question is, would that work?

      •  so why does Obama seem to want to do exactly that (5+ / 0-)

        is the question Krugman asks in this morning's NYTimes op-ed...

        Why does the Obama team favor a "bank for bad assets" approach?

        "History is a tragedy, not a melodrama." - I.F.Stone

        by bigchin on Mon Jan 19, 2009 at 06:44:38 AM PST

        [ Parent ]

        •  It's an idea that won't die (7+ / 0-)

          But it also won't happen once people take a look at the numbers.

          TARP was supposed to be a similar thing, until everybody realized that it wasn't going to work.

          I think that Krugman explained the popularity, though: it doesn't look like nationalization, and it seems to offer a way of making one big move to fix the system.

          Where it all goes wrong is that the "toxic" assets are believed to be way too shitty for the market to get started at the HIGH HIGH prices that would be required to save the banks.

          "Dream for just a second and then do it!" -- Kolmogorov

          by theran on Mon Jan 19, 2009 at 06:48:59 AM PST

          [ Parent ]

      •  Um Wrong.. (2+ / 0-)

        Banks will sell those assets at realistic prices when they are forced to.

        Going forward to fix the financial system (of the entire world),  CDO's and CDS's must be either
        much more closely regulated or outrightly banned.

        The Bankers KNOW this is coming if for no other reason than the current shadow banking system where
        wealth can be created out of thin air is not sustainable. There is so much bad paper out there
        that the banks have lost all confidence in each other.

        Banks are not going to be allowed to leverage themselves at 35 to 55 percent of assets anymore either.

        Right now anyone with a lick of sense has their money parked far away from wall street.
        And until their is confidence in that system again
        the money will stay out.

        Nothing that has been done so far via TARP or any other FED - Government action is inspiring confidence to investors or savers.

        Is the entire Republican party composed of relatives of Bagdhad Bob? - Catatonia

        by Nebraskablue on Mon Jan 19, 2009 at 08:12:00 AM PST

        [ Parent ]

        •  like to rec this a 1000 times! n/t (0+ / 0-)

          Find your own voice--the personal is political.

          by In her own Voice on Mon Jan 19, 2009 at 08:46:56 AM PST

          [ Parent ]

        •  All wealth is created out of thin air. (2+ / 0-)
          Recommended by:
          drewfromct, Econaut

          A dollar is only exchangable for goods and services because people are willing to accept that it has value. All wealth is speculative, even when it represents physical assets.

          If I have an oil refinery, say, it's only said to be "worth" something because it could be used to refine oil, and the refined oil can be sold for more than crude. So the purchase price of the refinery is a speculation on the future value of an asset.

          Forcing banks to sell assets they bought under the assumption they would be able to sell them for more later at a lower price than they paid would be like going up to someone who's bought an oil refinery and forcing them to sell it to you for $10, then acting surprised when they immediately declare bankruptcy. We either need banks or we don't (we do) and if we need them they have to be either kept in business artificially or nationalised, either of which is going to cost the taxpayer.

          Oh, and if they go out of business and the economy collapses, the taxpayer will wind up paying anyway via large-scale unemployment.

          •  um no... (2+ / 0-)
            Recommended by:
            enough already, drewfromct

            Todays paper wealth is created out of thin air, period.

            There is no "Oil refinery" behind a CDO or CDS,
            indeed their is no land, no property at all, just a promise to pay X if Y happens.

            Normally wealth is specualtive (as you said)  based upon the conditions of the market for an actual asset (House, etc) at any given time.

            A CDO and or CDS is not wealth, nor is it truely an asset.  Well if you like to play Ponzi schemes I guess it is.

            They are insurance policies, a hedge against things going badly in some investment you own, or for a company that owes you money.

            The problem is every tom, dick and harry sold these things, for hundreds of times the entire world capital available - (See CDO / CDS Market cap).

            There is NO POSSIBLE WAY to unwind them at the contracted rate.

            The sellers who once had tons of money rolling in, now or soon will be forced to pay off on them.
            Or default.

            My own guess is default, on a huge world wide scale,
            triggered by some state - Spain perhaps, saying enough, they are garbage and we refuse to honor them.
            Which will look pretty good to other countries which currently are in the same boat.

            Forcing banks to unwind this mess will kill a lot of them, but it will happen sooner or later.

            Why, because there is NO REAL ASSET behind them,
            and there never was.

            Is the entire Republican party composed of relatives of Bagdhad Bob? - Catatonia

            by Nebraskablue on Mon Jan 19, 2009 at 01:10:49 PM PST

            [ Parent ]

        •  correction 35-55 TIMES their assets /NT (1+ / 0-)
          Recommended by:
          Nebraskablue

          "First they ignore you, then they ridicule you, then they fight you, then you win." -- Mahatma Gandhi

          by IamTheJudge on Mon Jan 19, 2009 at 11:54:43 AM PST

          [ Parent ]

      •  Yes we must save the banks (3+ / 0-)

        from their own stupidity. No the better solution, lets nationalize the banks and set up this bad asset bank to take the bad assets from the bank. As long as all the banks are nationalized that will be a no lose proposition for the taxpayer. No nationalized banks means the taxpayer left holding the bag. You are still defending the notion that privatize the profits and socialize the risks. Link William Buiter not necessarily a promoter of liberal economics.

        There is a better alternative. The alternative is to inject additional capital into the banks by taking all the banks into full public ownership.  With the state as sole owner, the existing top executives and the existing board members can be fired without any golden handshakes.  That takes care of one important form of moral hazard.  Although publicly owned, the banks would be mandated to operate on ordinary commercial principles.  Managers could be incentivised by linking remuneration to multi-year profitability. The incentives for excessive liquidity accumulation and for excessively cautious lending policies that exist for partially nationalised banks and for banks fearing nationalisation would, however, be eliminated.

        In addition, full public ownership of the banks would greatly facilitate the creation of a ‘bad bank’ that would hold on its balance sheet all the toxic assets (illiquid assets of highly uncertain value) currently held by the high street banks.  The key problem with any bad bank proposal is the price it pays for the toxic assets it acquires from the banks.  If all the banks, and the bad bank, are publicly owned, this problem goes away.  The toxic assets are simply moved to the balance sheet of the bad bank.  They could be valued at anything from zero to their notional value or historic cost (or even higher).  It would be a redistribution of wealth from one state-owned entity to another state-owned entity.

        Isn't that the implicit bargain in being a shareholder regardless of what kool-aid has been mixed up since the 80s. The banks screwed up, the shareholders lose. The economy has already lost. Screw the shareholders.

        Krugman argues against asset relief as bait (aggregator bank) and switch (taxpayer money for bank profits), and this is what you are defending in your essay.

        Furthermore, these institutions where the promoters of the most destructive forms of capitalism in the past 30 years. Never was a time they wouldn't come out and demand that the people suffer the consequences of their greed. Wealth is just measured in dollars or growth of GDP. Sometimes justice is its own form of wealth.

        I also appreciate how you brush aside the issue that the banks aren't doing what is best for the economy, but what is best for themselves. FDR had it right, nationalize the bastards and make them do what you want -- this is the best solution.

        In every cry of every man, In every infant's cry of fear, In every voice, in every ban, The mind-forged manacles I hear

        by Areopagitica on Mon Jan 19, 2009 at 08:58:45 AM PST

        [ Parent ]

        •  Let the fucking banks choke on (2+ / 0-)
          Recommended by:
          SecondComing, happymisanthropy

          THEIR bad assets. We don't need them or their trash. We can create a national bank that just ignores the mess that capitalism has been brewing since the 70s and start to build a rationally run economy.

          We cannot win a war crime - Dancewater, July 27, 2008

          by unclejohn on Mon Jan 19, 2009 at 09:05:26 AM PST

          [ Parent ]

          •  But this seems to me (2+ / 0-)
            Recommended by:
            unclejohn, happymisanthropy

            a solution to the Gordian knot that has been created by the banks. Plus US government becomes the power in the financial system. We can force the banks buy municipal bonds and other investments like that, force them to invest their capital inside the borders of the country. But no, we must let the markets be 'free' at any cost to society.

            Right now, we are protecting vulture capitalism.

            In every cry of every man, In every infant's cry of fear, In every voice, in every ban, The mind-forged manacles I hear

            by Areopagitica on Mon Jan 19, 2009 at 09:26:46 AM PST

            [ Parent ]

            •  What you are describing is not capitalism at all (0+ / 0-)

              And changing the economy as you describe would result in such a massive dislocation that we probably would have a depression.  No doubt in the worst case scenario the government will just nationalize all the banks, but forcing them to buy municipal bonds, etc, does not sound the least bit productive.  We'll end up with banks being an uneconomic mess after all of the politicians go in and use them for their own pork barrel purposes.  

              Don't like XOM and OPEC? What have YOU done to reduce your oil consumption? Hot air does NOT constitute a renewable resource!

              by Asak on Tue Jan 20, 2009 at 02:25:43 AM PST

              [ Parent ]

          •  Ha ha ha ha ha! (0+ / 0-)

            You've got at least a dozen extra votes in the Senate somewhere that I don't know about?  The blue dog types would never go for it, much less the rethugs.

            The perfect isn't just the enemy of the good sometimes, it's also the enemy of the necessary evil.

            •  Of course, (1+ / 0-)
              Recommended by:
              enough already

              given enough anger, which is not to be discounted, in the population, the issue might be decided independently of who does what in the Senate. FDR realized that, so he threw us some crumbs. This time we should take the cake.

              We cannot win a war crime - Dancewater, July 27, 2008

              by unclejohn on Mon Jan 19, 2009 at 11:04:54 AM PST

              [ Parent ]

    •  That jsut reinflates the bubble (22+ / 0-)

      Devaluation is absolutely essential to getting the economy moving again. No one wants to invest in assets that are priced miles above their real value. A very important way to unstick this economy is through a very painful bought of deflation.

      And of course, getting people in the Fed and Congress who understand the importance of raising wages. Rising wages means more consumption.

      Finance driven economic growth is illusory. Always. Home prices alone are in the stratosphere relative to real value. Would you buy a home right now if you thought it was overpriced and there was a strong chance it would lose another 20-25% of its "value"?

      We too closely associate "price" with "value" in this country. They are NOT the same thing.

      Where the fuck is my bailout?

      by ThanxAl on Mon Jan 19, 2009 at 05:29:46 AM PST

      [ Parent ]

      •  We are not having deflation, (0+ / 0-)

        Gold is $850 or thereabouts and silver is over $11.

        Gold was near $300 and silver under $4 withing the last 8 years.

        So this whole talk about deflation is hooey.  And the government has the foot to the floor increasing the money supply.  We will not have deflation with all this monetary stimulus.

        •  You will be wrong within 60 days (10+ / 0-)

          We are already at +/0.1% in/deflation as of December 2008.  The odds of January and February 2009 monthly inflation being as high as 2008's numbers are miniscule and none.  That will firmly push us over into YoY deflation.

          Bookmark this comment and tell me if I'm wrong.

          "When the going gets tough, the tough get 'too big to fail'."

          by New Deal democrat on Mon Jan 19, 2009 at 08:38:43 AM PST

          [ Parent ]

          •  You are right (6+ / 0-)

            I've read several of penguins comments and he or she doesn't quite understand the scope of the problem.  They also think FDIC can cover the losses if the banks go BK...I don't think that 50 billion they have on hand is gonna solve the problem...

            ~War is Peace~Freedom is Slavery~Ignorance is Strength~ George Orwell "1984"

            by Kristina40 on Mon Jan 19, 2009 at 08:59:37 AM PST

            [ Parent ]

          •  Then explain to me why the precious metals (0+ / 0-)

            maintain their high prices?

            And further the prices in the grocery store are not dropping either.

            With the Federal Reserve keeping interest rates so low, holding US dollars is a losing proposition.  We will not have deflation.

            The government is also buying MBS's on the open market and buying treasuries.  This is extremely inflationary.

            •  You must shop different stores than i do (1+ / 0-)
              Recommended by:
              unclejohn

              Six months ago I was paying 4.39 for a gallon of milk, yesterday it was 3.49.  Yes, they are doing all of that to try and stop deflation.  Will they overcorrect?  Probably, and we will see inflation, just not anytime soon.  Probably second or third Q 2009 would be a better guess.  

              Precious metals are way off their highs from last year.  Do you read any of Roubini's articles?  

              ~War is Peace~Freedom is Slavery~Ignorance is Strength~ George Orwell "1984"

              by Kristina40 on Mon Jan 19, 2009 at 09:04:39 AM PST

              [ Parent ]

            •  Your precious metals fetish (1+ / 0-)
              Recommended by:
              theran

              is just that. End of explanation.

              We cannot win a war crime - Dancewater, July 27, 2008

              by unclejohn on Mon Jan 19, 2009 at 09:14:48 AM PST

              [ Parent ]

            •  Precious metals are high (2+ / 0-)
              Recommended by:
              theran, betterdonkeys

              because in a deflationary spiral cash is king. Gold and precious metals are going to be the only asset that inflate during deflation. Teh metals represent liquidity in an otherwise illiquid market market.

              So rising precious metal prices, especially the jumps in the past few months would actually indicate deflation.

              During the Depression, the US government confiscated gold from safe deposit boxes, in an effort to create more liquidity.

              In every cry of every man, In every infant's cry of fear, In every voice, in every ban, The mind-forged manacles I hear

              by Areopagitica on Mon Jan 19, 2009 at 09:48:17 AM PST

              [ Parent ]

        •  Yes, we will. (6+ / 0-)

          We are in a deflationary spiral now.  The monetary stimulus is to try and thwart deflation.  Did you miss the part where CPI went negative last month?  I'm not sure where you are getting your information but it is incorrect.  I would suggest you make your way over to Roubini's blog or Calculated Risk...asap.

          ~War is Peace~Freedom is Slavery~Ignorance is Strength~ George Orwell "1984"

          by Kristina40 on Mon Jan 19, 2009 at 08:48:12 AM PST

          [ Parent ]

        •  You don't know what you are talking about. (2+ / 0-)
          Recommended by:
          theran, betterdonkeys

          In/Deflation are not measured by the price of precious metals. Commodities, homes, CPI, stocks are all deflating. If autos aren't yet, they will be soon, since the bottom has dropped out of the market.

          The government is not increasing the money supply; it is shoving money at the banks, which are hoarding it, not circulating it. If it isn't circulating, it can't contribute to inflation.

          We cannot win a war crime - Dancewater, July 27, 2008

          by unclejohn on Mon Jan 19, 2009 at 09:12:26 AM PST

          [ Parent ]

          •  What is going to happen is that production (0+ / 0-)

            is dropping because the price of everything is getting to be less than the cost of production.

            Now we have all kinds of surpluses of many commodities because prices ran up to astronomical levels.  Once we burn off the surpluses we will have shortages and then look out below, because we will really see some inflation.

            As long as gold and silver are so high I do not believe one word about deflation.

            •  If production becomes unviable (0+ / 0-)

              how does that lead to the price going up?  (If it were going up, production would be a viable activity.)

              "Dream for just a second and then do it!" -- Kolmogorov

              by theran on Mon Jan 19, 2009 at 10:17:19 AM PST

              [ Parent ]

            •  Really! You can't make this shit up! (2+ / 0-)
              Recommended by:
              enough already, Econaut

              Way back in the late 60s, the post war boom began to fizzle out. At that point, investment in production became less attractive, and the shift into speculative investment began. Since then, all the safeguards that were established to keep investors from going bonkers they way that did in the 20s, causing the First Great Depression, were stripped away, leading us to the Second Great Depression, which is just now gathering steam.

              Here are two of my posts on this subject, well worth reading and maybe helping you cure yourself of some of your von Hayek mysticism:

              This one cuts to the chase.

              This one includes more meat.

              The upshot is that as long as there is more capital around than can be profitably invested in production, it will have to be invested in speculation or it will die.

              Since nobody has been able to, nor seems likely to be able to, come up with a solution to this problem, within the currently dominant accounting system (capitalism), we are either in for a world of shit or we are going to have to invent a new accounting system that does not depend on the unlimited growth of capital in a economic finite system.

              So, if you are interested in providing solutions, rather than spouting falsified ideology, put on your thinking cap.

              We cannot win a war crime - Dancewater, July 27, 2008

              by unclejohn on Mon Jan 19, 2009 at 10:40:26 AM PST

              [ Parent ]

        •  We are having deflation (3+ / 0-)
          Recommended by:
          theran, ThanxAl, New Deal democrat

          You can pick and choose your commodities and show some where the prices have not dropped, but that doesn't mean we're not in deflation.

          For one thing, deflation is not all about prices.  

          Here's what someone who knows a bit more about it has to say:
          From the Guardian

          Consumer prices in the US fell sharply for the third month in a row in December, sparking fears of deflation. The US Labor department said the Consumer Price Index dropped by 0.7% last month, after falling 1.7% in November. For the year, consumer prices edged up by just 0.1%, the smallest annual change since 1954. Consumer prices rose by 4.1% for all of 2007. Nigel Gault, chief US economist at IHS Global Insight, said: "Inflation, seemingly so worrying just a few months ago, has vanished. Deflation is now the threat. The 12-month CPI inflation rate peaked at 5.6% in July, and has now plunged to just 0.1%."

        •  See thread below. (0+ / 0-)

          Deflation may not be showing up in your chosen commodity, but it is beginning to show up in economic data.

          Where the fuck is my bailout?

          by ThanxAl on Mon Jan 19, 2009 at 11:56:07 AM PST

          [ Parent ]

      •  Thats a very inhumane outlook. (0+ / 0-)

        -5.38, -5.90 Deus mihi iustitiam dabit.

        by cjallen on Mon Jan 19, 2009 at 01:49:19 PM PST

        [ Parent ]

    •  How about letting the big banks die off (13+ / 0-)

      and let smaller banks (they do exist) grow to fill the void? (in other words, let the system work)

      But that would smack of just desserts and no Boomer can comprehend such a philosophy.

      It's amazing to see self-styled "Progressives" arguing to give the Global Corporate Elite free money.

      If a depression is a prolonged recession, what's a prolonged depression? A Dark Age... welcome home...

      by Paul Goodman on Mon Jan 19, 2009 at 05:30:15 AM PST

      [ Parent ]

    •  Bad idea. (0+ / 0-)

      A bad asset bank means that you buy the bad assets with your tax dollars. Why not just light cigars with them?

      We cannot win a war crime - Dancewater, July 27, 2008

      by unclejohn on Mon Jan 19, 2009 at 09:02:04 AM PST

      [ Parent ]

      •  Basically FDIC insured banks that are insolvent (0+ / 0-)

        should be officially under receivership.

        This normally means pumping in government money to cover the losses.

        Assets that can be sold at a fair price can be sold.

        Selling a $150,000 house for $50,000 in a "fire sale" to "clean" house is stupid.

        As long as a bank is FDIC insured, insured depositors don't care.

        The FDIC could pay 7% interest on money they don't make promptly available.

        Inter-bank loans can be federally insured too.

  •  These toxic assets should be rescinded or unwound (2+ / 0-)
    Recommended by:
    PsychoSavannah, yellow dog in NJ

    I am surprised at how slowly the regulators have moved to go after these bad instruments.  It is not worth spending taxpayer money on them.

  •  What does "ETF" mean? (eom) (2+ / 0-)
    Recommended by:
    Brooke In Seattle, blueocean

    There are 10 kinds of people in the world: those who know binary and those who don't.

    by JBL55 on Mon Jan 19, 2009 at 05:25:29 AM PST

  •  Post hoc ergo propter hoc, Bonddad (14+ / 0-)

    TARP was an election year phenomena of both culpable parties trying to out do each other at  "doing something" about "the economy".

    They still haven't done anything about the destruction of the manufacturing base and the eroding effects of globalism on American labor and all businesses that cater to it (e.g. Circuit City). Thus they have done nothing at all.

    TARP simplified: Once China was free of their Olympic shackles, they spoke through their intermediary, PIMCO's Bill Gross, and said they weren't going to throw more money down the American rathole. Since the cessation of junk to the heroin addict would cause fatal withdrawal pains, our Establishment gave the foreigners a sweetheart deal. They would give foreigners 2 sets of cash: the first set they would keep, the second set hey would use to continue to buy our Treasuries (wonder why auctions have miraculously gone from dismal to utopian?). The Chinese et. al. are giving Obama a grace period for him to figure out what to do short of a default, but failing that they will unload an economic bomb on America.

    So no kudos Bonddad, because you failed to capture the situation as yet more crack for the junkie, and are calling it rehab.

    When the treasury bubble bursts, you will have to eat your "give Obama a chance" rhetoric. And we will be in the same position as August, only much, much worse.

    If a depression is a prolonged recession, what's a prolonged depression? A Dark Age... welcome home...

    by Paul Goodman on Mon Jan 19, 2009 at 05:26:39 AM PST

  •  I think you're incorrect on this: (25+ / 0-)

    My guess is that much of the anger over TARP has as much to do with how we got here rather than what is actually happening with the program.

    A lot of the anger is from:
    . banks stonewalling about how they're using the money.
    . banks flaunting poor use of the money.
    . Bush/Paulson playing the omg-terror-fear-collapse game.
    . Bush/Paulson stonewalling + Congress caving on putting in strong restrictions and reporting.

    A lot of people (yes, me included) already believed something had to be done. But it pisses me off no end that Bush/Paulson/Banks told me to go sit in the closet and spin.

    Member, The Angry Left.

    by nosleep4u on Mon Jan 19, 2009 at 05:35:17 AM PST

  •  Well I am pulling everything out anyway. (12+ / 0-)

    I am making my own run on the bank because I have no faith these crooks are done.  I don't think the bailout will work, and I think it is all going to crash - anyway.   So if I'm going to get stuck with their debt, I may as well keep what little money they've let me to pay for it.  

    The double standard in this country totally sucks.

    They're asking for another four years -- in a just world, they'd get 10 to 20 ~~ Dennis Kucinich

    by dkmich on Mon Jan 19, 2009 at 05:35:42 AM PST

  •  Exactly, all that, plus the (4+ / 0-)

    most important reason of all - to funnel my paltry $$s upwards to Our Rich Overlords.

    Which of course is important so that the $$s can then trickle back down, keeping me employed and all that.

  •  TARP may be necessary.. but (13+ / 0-)

    I want to see every CEO and board member of those companies who sucked so bad they needed our tax money driven through the streets tarred, feathered and beaten - not taking a holiday at some exclusive resort.

    pre-emptive war · collective punishment · torture | 21st century values

    by The Dead Man on Mon Jan 19, 2009 at 05:38:05 AM PST

  •  Thank you, bonddad. (4+ / 0-)

    As always, you explain things very well.

    Yet, what is the next stage? How can they unwind the toxic assets when no one wants to be stuck with them?

    They have uncoupled the cause and effect that would make them suffer from poor judgement, no? They have institutionalized the risk, to the detriment of all.

    I see it as the banks should be taking the ultimate responsibility for mortgages written without any reasonable expectation of them being paid back. But they refuse to give up salaries and bonuses.

    Isn't that what people are really upset about?

    I know I am.

    WereBear
    Pootie fan? Me too! Check out my cat advice blog.
    The Way of Cats

    by WereBear on Mon Jan 19, 2009 at 05:42:45 AM PST

  •  Much of the banking sector (3+ / 0-)

    is bankrupt.  Manay of the big money center banks did not Pre-TARP have enough real capital to meet their risk captial requirements.  The reason they are not lending is because they don't really have the money.

    Without TARP, I have little doubt Citibank would have gone under and we know of at least several others that would have failed as well.  It was necessary.  However, whatis requires is close monitoring of the investments made under TARP.

  •  banks (4+ / 0-)

    I thought the names of the banks that received money were not being made public. If they were going to be public then banks would not take the money they said. Also, if the public knew what particular banks needed the money they would lose confidence in those banks.

    Yet, there is the link to the pdfs with the list of banks. Wells Fargo received 25,000,000,000 in the first pdf. I had read they were one of the strong ones.

  •  TARP amounts to a form of theft... (6+ / 0-)

    The "banks" that were in trouble became "banks" in order to qualify for tarp money. Who are you trying to fool?

  •  Wall Street muts be killed off (30+ / 0-)

    The American financial and banking system is infested with useless predators who suck more value out of the real economy than they provide.

    First, from the perspective of national goals, the American financial and banking system has been a dismal failure, with real industries, most particularly capital goods, and public infrastructure, STARVED for funds for almost three decades now. Instead, the financial and banking system has supported ever increasing debt, and ever more complex derivatives based on that debt, none of which has done an iota of good for the real economy.

    The major result has been that the United States has been unable to make any progress what so ever in ending its dependence on imported energy sources. In fact, the U.S. has been moving backwards, becoming MORE dependent on imported energy sources.

    Nationalizing the financial and banking system would allow us, as a society, to channel flows of investment and credit to entrepreneurs and companies that are actually working toward new, domestic sources of renewable energy. In other words, the financial and banking system must become a regulated public utility.

    Second, what no one has yet discussed is the cultural problem of entire generations of Wall Streeters who have been indoctrinated in the mores, norms, and values of financial capitalism, rather than industrial capitalism. This makes them, by nature, hostile to and intolerant of real industries, most particularly capital goods, public infrastructure, social investing, and the development of the actual source of all wealth, human capital. As James Crotty has shown, the percentage of cash flow that non-financial companies have had to pay to the financial and banking system has nearly tripled since the 1960s. This mal-appropriation of non-financial companies’ cash flow is the basic causal factor in the decline of working class earnings, the destruction of job security and the erosion of health and retirement benefits, and the development of a portfolio mentality of industrial assets that makes it impossible to provide the long-term nurturing an industrial enterprise requires.

    NFC Cash to financial markets

    The American financial and banking system presents us with a culture of financial predation that must be rooted out. The only real way to do that is to remove from office all the people who now preside over our largest financial and banking institutions. The habitual policies and practices of  the American financial and banking system are obstacles to a recovery of the real economy. The sooner that system is killed off, the better: [Wall Street] now wants to cut SS & Medicare because we can't afford it.

    Fortunately, we have thousands of local and community banks, which as FDIC and Comptroller of the Currency reports have reported, never engaged in the financial derivatives of predatory Wall Street. A new generation of bankers and financiers can be drawn from these banks.

    Another reflection of this cultural problem is that for many of the past years, the amount of just BONUSES given out on Wall Street was MORE than the total wage gains of nearly 100 million Americans for FIVE years. This is how the rich have stolen from the poor. Depending on Wall Streeters to manage an industrial renaissance is tantamount to asking an arsonist to manage a local fire department.

    The complete disutility of the present financial and banking arrangements for helping meet the needs of the common good is strongly indicated in the recent GAO report on offshore tax havens. Going through the list, one is struck by how many subsidiaries financial companies such as Goldman Sachs and Citigroup have established in offshore tax havens – compared to many other large companies, like WalMart, which has none.  The top level of American financial and banking system is criminality writ large.

    Wall Street and predatory financial capitalism must be destroyed if the United States is to survive. It’s either a return to industrial capitalism, or the usury and speculation of financial capitalism will bankrupt and destroy the citizens and the country.

    A conservative is a scab for the oligarchy.

    by NBBooks on Mon Jan 19, 2009 at 05:54:51 AM PST

  •  How Long To Keep The Drunk Alive? (9+ / 0-)

    What is the end game here?  How much longer have we got to keep pumping money into this drunk?

    After all, it's not like there isn't a lot of other bad stuff going on in this economy and we're trying to figure out the triage scenario.

    Plus, there is a whole lot of moral outrage out here.  We are throwing money at the people that caused the problem.  The normal world rules normal take the money away from such people.  The normal rules have these banks going bankrupt.

  •  The windfall (16+ / 0-)

    NY Times, Jan. 17, 2009:
    Bailout Is a Windfall to Banks, if Not to Borrowers

    A review of investor presentations and conference calls by executives of some two dozen banks around the country found that few cited lending as a priority. An overwhelming majority saw the bailout program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses or invest for the future.

    Digby's riff on the Times piece:

    I guess I find it amazing that these bankers so blithely admit that they are taking money they don't need and are using it for things that won't help the economy.  ...

    Again, I'm reminded of the run-up to the war. You know the reasons they are giving are complete nonsense, and the reason that seems obvious is so outrageous that you keep thinking there's something you're missing. But you aren't. It's exactly what it seems to be -- powerful interests are just taking what they want because the opportunity is there. And they aren't even trying to hide it.

    "Injustice wears ever the same harsh face wherever it shows itself." - Ralph Ellison

    by KateCrashes on Mon Jan 19, 2009 at 06:05:57 AM PST

  •  Causality fail (18+ / 0-)

    In addition, the program has been a success for one simple reason: the US financial system has not collapsed.

    Or, if you like:

    In addition, the program has been a success for one simple reason: we have not had a terrorist attack on our soil since 9/11

    I can't believe the normally reliable Bonddad put that out there.

    I can say, just as validly, both successes are due to a Magic Rock in my front yard.

  •  It seems every graph heads to oblivion (3+ / 0-)

    Not just economic graphs, but every graph I see lately aim in exponential curves that cause heart attacks.  I realize that charts and graphs are cropped, but even expanded, I look at the possibilities and wonder, "is that a shoulder?... what is that?"

  •  Partial collapse is inevitable (9+ / 0-)

    Just like with car companies, there is and will be no need for the level of banking in our country.  Some of it is going to go away, just like some auto manufacturing capability.

    And nationalizing the banks would be a great way to avoid collapse, if that's your main concern.

  •  Institutions are PEOPLE (11+ / 0-)

    Institutions are not "things" that run on some sort of auto-pilot agenda dictated by a corporate deus ex machina.  Institutions and corporations are people, run by people... people.

    The PEOPLE who got us here need to be put in jail.

    Maybe THEN the institutions can be saved as you suggest.  Because as long as the same PEOPLE are running the show the same PROBLEM will manifest, over and over...

    just as it has manifest in this "needed" but COMPLETELY CORRUPTED Tarp action.

    Let the institutions fail.  Let the PEOPLE who ruined our economy face the legal consequences NOW, so that "we the people" can be made whole.  We've already faced the consequences and they have been dire.  And NONE of the solutions offered so far by Obama will correct those already experienced dire consequences.

    The DEMS seem to want to kick this can down the road. That is a HUGE MISTAKE, imho.

    "History is a tragedy, not a melodrama." - I.F.Stone

    by bigchin on Mon Jan 19, 2009 at 06:37:13 AM PST

  •  What do you mean ‘we’, kimosabe? (27+ / 0-)

    My guess is that much of the anger over TARP has as much to do with how we got here rather than what is actually happening with the program.

    For decades, any talk of applying utilitarian principles to the allocation of resources in our society has been taboo, let alone applying ideas of social justice or historical redress.    Now, though, everybody is in this together.  We were all in the same boat all these years?

    So now we are supposed to accept massive resource distributions to the financial industry for the 'good of the economy' as if, when the ship is righted, Americans will then be able to count on a living wage, decent housing, educational opportunities or health-care.  No.  We won't be able to afford it.

    So now the new ideology is to pursue what is 'for the good of all' after years in which we have been asked to accept the final word on justice to be the pure results of individual business transactions, and this without any serious effort at accountability for the past.  Surely the selling of TARP counts as one of the greatest acts of chutzpah in the history of the world, whether it is 'for the best' or not.

    •  You've perfectly described Ideologica Americana (13+ / 0-)

      We're all in it together when it is good for business and finance, and we supposed to pull ourselves up by our bootstraps when it isn't.

      I forget what it is called when corporations run the state at the expense of civil society? Hmmm...let me go look at Selections from the Prison Notebooks for a second.

      Watching this corporate hogs grovel at the slop-trough of government has made me sick. Only to be made worse when so-called "conservatives" come on TV or radio to extol the virtues of running the economy the way they have over the last eight years...into the ground, that is.

      Where the fuck is my bailout?

      by ThanxAl on Mon Jan 19, 2009 at 06:54:16 AM PST

      [ Parent ]

      •  Our baby is all grown up... (1+ / 0-)
        Recommended by:
        In her own Voice

        born in the beginning of the 20th century,
        given its trust fund in the 1920's
        got its Christening in the 1940's
        almost saw the light in the 60's, but 1969 took care of that
        graduated in the 70's
        got down to business in the 80's
        got a PHD in PR in the 90's
        took over the company with the start of the new millennium

        now pwns U.S.

      •  Just like whether we are a Democracy (0+ / 0-)

        or a Republic.

        When it's time to send people off to wars, suddenly we're a Democracy. When it's time to divide the profits the people create, we're now a Republic.

        Until we break the corporate virtual monopoly on what we hear and see, we keep losing, don't matter what we do.

        by Jim P on Mon Jan 19, 2009 at 12:56:24 PM PST

        [ Parent ]

  •  Am I missing something? (10+ / 0-)

    I'll admit I read the diary quickly, but what I got out of it was that the fix to the TARP problem is to tell the banks again what they can and cannot do with the money, when the banks have already told us to stuff the guidelines, they'll do what they want with it, and also that they aren't even keeping track of that money separately anyway.

  •  No TARP $ for buying distressed institutions (8+ / 0-)

    The S&L crisis was made much worse because the government tried to limit the damage by talking a bunch of good banks into buying lousy banks.  As things got worse, many banks which might have survived were taken under by the over-valued assets they acquired in these deals.

    We need to start with the assumption that every financial institional in this country is distressed becaused their assets could not be sold in today's market for a price which will cover their liabilities. How much healthier would these "too big to fail" institutions be today if they hadn't bought Countrywide, Wamu, etc.?

    Why give Jamie Dimon, Ken Lewis, Vikram Pandit, et al. a free option to cherry pick the rest of the country's banks while we still end up holding the bag for the worst ones?  The only banks that should be allowed to use TARP funds to buy other banks should be ones where (perhaps through some kind of convertible prefferred) the government effectively owns over 51% of the economic interest.  Otherwise TARP funds should only be used to replace lost Tier I capital.

    What we need is more banks failing and the government parking the residential mortgage assets in FNMA and Freddie while parking the rest of the bad loans in a new RTC which will hold them for 18-24 months before deciding on a liquidation procedure.

    Basically the government is on the hook for the liabilities, why should the government pay for assets they are eventually going to get for nothing?  If they want to keep insolvent institutions operating they can provide a type of debtor-in-possesion funding.

    What did you do with the cash Joe?

    by roguetrader2000 on Mon Jan 19, 2009 at 06:45:19 AM PST

  •  Exactly and thank you (2+ / 0-)
    Recommended by:
    Time Waits for no Woman, Econaut

    I am one of a few who accept that TARP is necessary. The horrors of the Depression are real, but remember where we went from there and note that the world is now chock-a-block with nuclear weapons which it was not back then. A complete global economic collapse is obviously no certain path to WW III but it would increase the odds over time.

    I understand the anger about TARP as you do -- we are bailing out greed-driven idiots and moral criminals from the fate they deserve. The alternative is that we let the world fall into a pit and that is even less appealing.

    We have only just begun and none too soon.

    by global citizen on Mon Jan 19, 2009 at 06:45:42 AM PST

  •  Are banks and bond holders an anachronism? (7+ / 0-)

    The banks will be replaced by a system which short cuts the path between investor and borrower.

    A viable company will offer certificates of deposit with various maturity dates directly to individual investors (which could be people or institutions.)

    Banks and bond traders will go the way of buggy whips.

    I will one day have an internet 'post modern bond' account with each company I like. When I think the company has a future, I will invest in it - by lending it money directly.

    The banks and bond holders have acted as aggregators, matching the real lenders with the real borrowers. They had their day.

    They will die like newspapers are dying, because newspapers are no longer the best way to match up buyers and sellers with classified ads.

    The dinosaurs will use all the political leverage  at their disposal to fight for survival - that is what they are doing now.

    But one day, there will be no sweeter words than:
    The [old] US financial system has collapsed.
     

    The only winning move is not to play. - Joshua

    by FightersFate on Mon Jan 19, 2009 at 06:45:46 AM PST

  •  Where was all this money when schools needed it? (13+ / 0-)

    Or bridges, you know, like that one in MN? Or for a million other things that have been neglected.

    Now that the captains of political cash need help, politicians can't trip over themselves fast enough.

    This fucking stinks, my fellow Americans. Ideology is marching us straight into debt-peonage.

    Where the fuck is my bailout?

    by ThanxAl on Mon Jan 19, 2009 at 06:59:58 AM PST

  •  The Old Standby (6+ / 0-)

    In addition, the program has been a success for one simple reason: the US financial system has not collapsed

    cum hoc ergo propter hoc

    <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

    by superscalar on Mon Jan 19, 2009 at 07:00:34 AM PST

  •  Bonddad's on my hotlist, and I originally (11+ / 0-)

    supported the bail-out.

    But I don't believe we have imagined the gross negligence in oversight of TARP, and I do believe that the misuse of our funds for their intended purpose is widespread and yet one more example of the devious relationship between congress and the financial powerbrokers that have brought this superpower to its knees.

    In addition, with Madoff and related meltdowns hammering the rich, how can we imagine that money placed in their hands today will go anywhere but into their offshore tax havens, to replenish lost wealth?

    I now believe that these organizations should be forced to get creative and find ways to survive on their own, much as many had suggested that the car industry should have gone hat in hand to the petroleum industry. Those who fail test of ingenuity, discpline and determination should be allowed to fail, like the final, phase of decadence and corruption in Rome.

    Let smaller, smarter, more nimble, less effete organizations rise up to take their place, fill the vacuum. It seems only natural that they would.

    And hopefully, for once, the leaders of the failed economy would be held accountable, if not by the judicial system, then by the market, by not being placed in new positions of responsibilities in the emerging organizations needing to write and follow new playbooks for success.

    We have no time but the time to change.

    by Words In Action on Mon Jan 19, 2009 at 07:01:13 AM PST

  •  Thank you, bonddad (3+ / 0-)

    for your clear explanations. I admit to not studying your charts, but your written explanations are always clear and on point. Thank you.

  •  The Push of TARP (19+ / 0-)

    I think the Diary falls short on a number of areas.

    1. Cause of potential "systemic" failure. We now have a glimpse of what the banks did starting in late 2004 until the gas ran out in 2007. They eagerly bought a bill of goods from Wall Street called CDOs and CDSs that claimed to virtually eliminated risk to loaning money to rate insensitive people. Mean those with low income and shit credit with no regard to the ability of the applicant to pay the loan back. That's called greed at it's best and fraud at it's worst. When did we get in the business of rewarding that behavior?
    1. (A) I know people like to blame the people who signed the contracts for not knowing better. That's an easy way out. Lets blame the victim here. The Salespeople from the Realtor to the mortgage broker were telling people this would be the last best chance that could have a buying any house in a good neighborhood as the prices would be out of their reach in a year. They were told they could get a refi before the resets set in. They had the houses Appraised by corrupt appraisers who won business by assigning outrageous values to the homes. I wonder how many people here are nervously looking at a sub-prime waiting and hoping something is done to take away the pain without taking away the house. Sure it may be underwater but in many places a reasonable fixed rate would be cheaper than renting.
    1. In other words, this is really poor contract drafting. : This is a mild understatement at the best. Paulson absolutely wouldn't have accepted those kind of contracts or applications for 1% of the  funds he pushed out ( 2 pages) as CEO of Goldman Sachs. Why would he accept them and defend them as Treasury Secretary?  
    1. Paulson was CEO of Goldman when his trading desk was actively shorting the CDOs Goldman was selling as triple AAA rated bonds with Credit Default Swaps. Did he suddenly have an epiphany of what he helped legitimize which caused a herd of corporate followers to dive head deep into this pile of shit he poured perfume on? Or was it simply bailing out the bettors and the Side bettors? Having zero ability to track the TARP funds usage is very helpful in covering up how the CDSs figured into this.
    1. Treasury knew why this systemic Failure was occurring. The counter party risk was simply to great in that buyers could not get cash collateral much less payment if an "event" occurred triggering the payment of Principle and Interest of the underlying credit. So the banks who had bet on failure were forced to bring back the mortgages with full cash payments of face value even though the underlying asset was substantially beneath it. That started slowly and then built up which caused banks capital to sink.
    1. We could have bought every single bad mortgage made in the sub-prime flurry with CDSs to justify them for less than the total TARP program.

    What will happen Next: We will end up nationalizing the banks which is what we should have done in the first place. We don't want "Masters of The universe" in charge of the shit pile they created. I'd rather have a dull low 6 figure Bureaucrat in charge of the money.  

    The Masters of the Universe should be in Jail. CDSs that have been purchased for the sole purpose of betting on failure should be made null and void. All Cash Collateral returned to the seller less the premiums paid.  Think AIG 's financial Division who sold 80 Billion of these swaps and didn't let it's actuaries even look at the the risk. They were too eager to book them as income. That cost us another 150 Billion.  Once we make CDS into regulated insurance, much of the funds that we supplied AIG could be returned since they had to put up cash collateral on the 80 Billion plus Swaps they sold. That doesn't account either for other divisions who sold derivatives on faulty assets. That's just the number I am aware of.

    I have no clear Idea why BD continues to sugar coat what was a incredible crime. But as long as we have people like him defending this pile of shit, it will inevitably lead to a large pile of shit and we can't afford the one we are buying now.

    Support Col Hackworth's because tomorrow is just a promise, not a guarantee

    by Dburn on Mon Jan 19, 2009 at 07:03:46 AM PST

  •  Why the TARP doesn't make good sense to me... (7+ / 0-)

    available if no one can afford to get it because they already have WAY TOO MUCH.

    Why don't the great financial powers that be use some of this money that the Banks and others are now hoarding to provide Middle and Lower class debt relief. If people have less debt they will spend more real money which will benefit the people by letting them get what they want and letting the Corporations produce it.

    If anyone asks where the money would come from for this I would say the SAME DAMN PLACE THE TARP CAME FROM. Which to me looks like clean out of thin air, or the bond market or wherever they keep seeming to find money to bailout the corps and the superwealthy that run them.

  •  If lack of available credit is the problem, (14+ / 0-)

    why didn't the government just lend the money out? Why interpose a set of middlemen that will add nothing except additional cost? Why throw billions to Wall Street banks to keep them solvent in the hope that they will lend? Why reward incompetents who put their own personal gain for this year or this quarter over the health of their company, the economy, or the country? Why do all this in secret?

  •  Krugman - The N Word. Nationalization. (7+ / 0-)

    These troubled assets have at their base a troubled consumer. Overburdened by debt and struggling. So is the goal here to set the banks right so they can print foreclosure letters and late payment letters to consumers? A recovery will not go anywhere until the balance sheets of the consumer is straightened out.

    Krugman's "Wall Street Voodoo" today.

    ...But recent news reports suggest that many influential people, including Federal Reserve officials, bank regulators, and, possibly, members of the incoming Obama administration, have become devotees of a new kind of voodoo: the belief that by performing elaborate financial rituals we can keep dead banks walking.
    To explain the issue, let me describe the position of a hypothetical bank that I’ll call Gothamgroup, or Gotham for short.
    ...
    Well, the government could simply give Gotham a couple of hundred billion dollars, enough to make it solvent again. But this would, of course, be a huge gift to Gotham’s current shareholders — and it would also encourage excessive risk-taking in the future. Still, the possibility of such a gift is what’s now supporting Gotham’s stock price.

    A better approach would be to do what the government did with zombie savings and loans at the end of the 1980s: it seized the defunct banks, cleaning out the shareholders. Then it transferred their bad assets to a special institution, the Resolution Trust Corporation; paid off enough of the banks’ debts to make them solvent; and sold the fixed-up banks to new owners.

    The current buzz suggests, however, that policy makers aren’t willing to take either of these approaches. Instead, they’re reportedly gravitating toward a compromise approach: moving toxic waste from private banks’ balance sheets to a publicly owned "bad bank" or "aggregator bank" that would resemble the Resolution Trust Corporation, but without seizing the banks first.
    ...
    What I suspect is that policy makers — possibly without realizing it — are gearing up to attempt a bait-and-switch: a policy that looks like the cleanup of the savings and loans, but in practice amounts to making huge gifts to bank shareholders at taxpayer expense, disguised as "fair value" purchases of toxic assets.

    Why go through these contortions? The answer seems to be that Washington remains deathly afraid of the N-word — nationalization. The truth is that Gothamgroup and its sister institutions are already wards of the state, utterly dependent on taxpayer support; but nobody wants to recognize that fact and implement the obvious solution: an explicit, though temporary, government takeover. Hence the popularity of the new voodoo, which claims, as I said, that elaborate financial rituals can reanimate dead banks.

    Unfortunately, the price of this retreat into superstition may be high. I hope I’m wrong, but I suspect that taxpayers are about to get another raw deal — and that we’re about to get another financial rescue plan that fails to do the job.

    •  Obama said, "if Krugman has ideas, we'll listen." (6+ / 0-)

      As if Krugman hasn't been a wellspring of good ideas for years...

      One can only hope that, through the fog of Summers and Geithner et al, Obama will eventually hear the sane side of the argument provided by Krugman, Roubini, Galbraith, Reich, Phillips, Kuttner, etc.

      I keep waiting for a sign...

      We have no time but the time to change.

      by Words In Action on Mon Jan 19, 2009 at 07:33:19 AM PST

      [ Parent ]

    •  Don't miss Krugman's main point: (5+ / 0-)

      Thanks, Virgil RK, for providing text from Krugman's important article. In case anyone is speed-reading through this, recommend slowing down for his important points. The banks that we are infusing with TARP funds are already dead. By backing them up, taxpayers are really propping up the stockholders of those banks (and their middlemen). And nationalization, however temporary is "the obvious solution." There's no way to steer TARP funds to and through existing banks to achieve the desired result to our economy.

      What I suspect is that policy makers — possibly without realizing it — are gearing up to attempt a bait-and-switch: a policy that looks like the cleanup of the savings and loans, but in practice amounts to making huge gifts to bank shareholders at taxpayer expense, disguised as “fair value” purchases of toxic assets.

      Why go through these contortions? The answer seems to be that Washington remains deathly afraid of the N-word — nationalization. The truth is that Gothamgroup and its sister institutions are already wards of the state, utterly dependent on taxpayer support; but nobody wants to recognize that fact and implement the obvious solution: an explicit, though temporary, government takeover. Hence the popularity of the new voodoo, which claims, as I said, that elaborate financial rituals can reanimate dead banks.

      Unfortunately, the price of this retreat into superstition may be high. I hope I’m wrong, but I suspect that taxpayers are about to get another raw deal — and that we’re about to get another financial rescue plan that fails to do the job.

      A quasi-nationalization has been discussed in which bad assets are purchased from these banks and held in a federal 'bank' for liquidation at a later time. This is not nationalization and it is not Krugman's recommendation. And who would determine the value of these assets? These assets need to find their floor without giving a bailout to the bank's shareholders. The warning signals about the housing bubble have been out there for some time.

  •  I wonder what would happen (5+ / 0-)

    if the federal government just served as a direect lender at a really low interest rate, maybe the rate of inflation plus overhead plus 1%.  The program could be used to cover just the really price inelastic items, such as housing, education, and maybe automobiles (and, hey, we could even throw in a stipulation that the federal auto loan must be used to purchase green cars!)  The federal govt could easily enforce payback simply through automatic withdrawal of some percent of the debtor's paychecks.  

  •  Love the Sinner - Hate the Sin (19+ / 0-)

    Bonddad -

    I really like your writing, your blog, and your desire to educate and share with this community.

    Having said that, I think your frame of reference is off.  If the "Financial System" is so critical to the common weal then it strikes me that it's more akin to a public utility like power companies, railroads, etc. were, say about 50 years ago.

    All the arguments (really premises) about how critical it is to have a sound, well functioning finance system -- premises with which I agree, btw -- then become arguments in favor of treating financial institutions like utilities and public service corporations.  That means legitimizing their monopolistic status in exchange for tight controls on such things as rates of return, lines of business, compensation, and so forth so that the ratepayers (in this case the depositors and taxpayers) don't get screwed by the reduncancy, duplication, and mismanagement often found in the private sector.

    Under a free market theory, it's no big deal when dueling big box drugstores elect to build a Walgreens, an Eckerds, and a CVS on 3 of the 4 corners of a major intersection in some suburb, despite the fact that the market cannot support that level of investment.  (Actually it is a big deal from land use planning, opportunity cost, energy consumptoin, and a sustainability perspective, but I digress).  But it is an undeniably wasteful and inefficient use (misallocation) of resources.  That argument is the positive flip side of why banks should be treated as utilities, as contrasted with the negative arguments (also valid, also reasonably held) about remedying the misdeeds inherent when the private sector is able to privatize gains and socialize losses.  The railroads, the grain elevator owners, the power companies, the banking and oil trusts of the 1870s - 1920s became regulated or broken up not just because they had become monopolies.  They were regulated because it's extraordinarly wasteful of natural resources, capital, and human resources and potential to build dueling, competing railroad lines, power lines, etc., on lands that as a last resort (and sometimes as a first resort) were expropriated by the government through its use of eminent domain for the benefit of private sector corporatoins.  (How do you think the right-of-way corridors [whether fee simple or easment] were acquired anyway?)

    Point is, as Bernie Sanders said often last fall, if these banks are "too big to fail" then they are too big to exist in their present structure and form.  The risk they pose to the nation's health (democratic values, economic well-being) outweighs their benefits. Twenty years ago, the S&L debacle (with which the Bush Family was inimately acquainted and with which they were rife with conflicting interests) taught the observant all they needed to know.  Ten years ago, the drive to repeal regulations affecting financial institutions (Glass Steagal Act) and to mitigate the adverse effects of commodities speculation (think ENRON) also told the observant all they needed to know.

    Sorry, Bonddad but as good as you've been, this piece of yours is just not persuasive.  It relies upon too many "trust me" self-proving statements and the evidence in the record of the past 120 years indicates such trust is misplaced.  I can't fathom why this country seems bent on going backward to the gilded age and beyond.  What's next, undo the enlightenment and age of reason?

    Finally, and don't take this too personally, one is judged by the company he keeps or in our case by the references one cites.  I see you give Milton Friedman prominence in this diary.  If you're so inclined to answer, do you find Friedman's body of work persuasive?  I'll be quite upfront, I'm not a trained economist and don't pretend to be one.  However, as a proud, liberal Democrat with a passing knowledge of history, I have trouble with Friedman's work.  I think Naomi Klein eviscerates his product and consequences quite well in Shock Doctrine..  He's right up there with Greenspan in my book.

    Fundamentally, I don't buy your premise that the income statement/balance sheet set of tools that measure the health of banks are the tools that matter most.  When all you have is a hammer, every problem looks like a nail.  You're a charts guy and that's great. But I don't care about the well-being of the shareholders of Citi, BOA, etc.; I care about the well-being of the depositors and borrowers that rely upon financial institutions.  Their intersts are not precisely the same.

    Blue skies,

    Not all that can be measured is worthwhile and not all that is worthwhile can be measured. - Albert Einstein (?)

    by Sky Pilot on Mon Jan 19, 2009 at 07:21:43 AM PST

  •  Accountability necessary for TARP to (3+ / 0-)

    work otherwise it's just throwing money down a sinkhole.  While I don't agree with giving people money whose greed is party responsible for the problems we face, the stability of our financial system is too important to just let them die.  The problem with early expenditures of TARP money is that Bush used the program to enrich his buddies and not to save the system.  I have more faith in an Obama administration that promises transparency.

    We should prosecute anyone who plans to use TARP money to enrich themselves.

    The only thing we have to fear is fear itself - FDR. Obama Nation. -6.13 -6.15

    by ecostar on Mon Jan 19, 2009 at 07:21:51 AM PST

    •  Yeah, but I think it's even worse than that. (0+ / 0-)

      For instance, how much of this TARP money is going to end up being put into credit default swaps to try and "run it up"?

      Much as I don't want to see financial industry execs taking their usual huge bonuses out of TARP money, it seems to me that an even bigger problem is the fact that there's been no effort whatsoever to re-regulate the industry and prevent them from engaging in the exact same shoddy practices that helped to bring them and the economy to the brink of utter collapse in the first place.

      If they simply go back to trying to play their same old books-cooking games, and their same old gambling schemes, then we'll be in a worse predicament in a fairly short time.

      In that sense, even execs using TARP money to line their own pockets is a comparatively minor problem. (And that doesn't understate what a big problem execs snagging TARP money for their own bonuses would be... it merely means that the financial industry going back to their old schemes with TARP money is just that much bigger a problem.)

  •  Thank you, Bonddad (1+ / 0-)
    Recommended by:
    Time Waits for no Woman
    I accept your explanation because I trust you.  I trust you because you have no agenda to push, and you have shown yourself to be on the side of the average person.  In other words, you have earned the trust I place in you.

    All those bankers and politicians who have pushed the TARP program have most definitely NOT earned any trust, so trust them I do not!

  •  What I don't understand (1+ / 0-)
    Recommended by:
    mamamedusa

    is that why the money went to banks who showed that they can't make responsible decisions. The money went to banks who had to make a profit on it but couldn't because they had to use some to keep their reserves up.

    Our financial system is composed of many institutions, some responsible and some greedy and irresponsible. There were many banks who are not at risk during this time and are still loaning money to buy homes.

    I'm really not that smart about this but I would think that if TARP was given to responsible banks that they would use ALL of it to lend out and that we would have no risk of the bank going out of business and losing all of it.

    What am I missing?

    I'm Ron Shepston and I'm not done yet. There's much left to accomplish.

    by CanYouBeAngryAndStillDream on Mon Jan 19, 2009 at 07:43:49 AM PST

    •  Because those big banks own the government (5+ / 0-)

      or are the government in many cases.

      Of, by, and for the big banks... is that what our veterans died for?

      If a depression is a prolonged recession, what's a prolonged depression? A Dark Age... welcome home...

      by Paul Goodman on Mon Jan 19, 2009 at 07:48:12 AM PST

      [ Parent ]

      •  I want to make this a part of the national (3+ / 0-)
        Recommended by:
        Odysseus, Paul Goodman, mamamedusa

        conversation. I don't buy the "too big to fail" line. I just can't believe that there would not be many many smaller banks lining up at the window to get what are effectively deposits that could be loaned out at a profit. Isn't that what banks do?

        Now they know that loans for second homes are not good ones to make but there are other entities looking for money that are going to use them responsibly.

        How 'bout small car manufacturers of alternative-fuel vehicles? How 'bout sustainability projects?

        We have to keep talking about this and let the market forces work where they want to work and step in when someone is working against them. I know that just saying it doesn't make it easier but just recognizing what's going on is a big part of finding solutions. I'm sure there is more than one solution.

        I'm Ron Shepston and I'm not done yet. There's much left to accomplish.

        by CanYouBeAngryAndStillDream on Mon Jan 19, 2009 at 08:03:15 AM PST

        [ Parent ]

  •  Really poor crafted drafting... (3+ / 0-)
    Recommended by:
    BDA in VA, Paul Goodman, mamamedusa

    A nice way of saying "have lots of taxpayer money
    with no strings attached".

    Which is EXACTLY the problem, TARP is a means in which WE and Congress let the Bankers shovel money
    at their losses which in the end will crush these
    banks anyway.  None to little of the TARP money is
    being lended out, so none of it is helping the
    economy anyway.

    Citi, BOA and Wells Fargo are all sitting on huge mountains of debt, CDS's and CDO's that are worth
    less than a roll of Charmin bath tissue.

    Not ONE thing has been done yet to either establish a market for those hybrid offerings, and market them to reality. And until THAT happens, everything else is just drama, spun by Paulson who has no frigging clue.

    All the bankers are doing is trying to keep the Titanic afloat by bailing out the water using spoons.

    The financial system will NOT get better until the biggest banks are either in bankruptcy or taken over and nationalized.

    And since we are entering a deflationary spiral
    right now.  Keeping them afloat should be secondary
    anyway.

    Is the entire Republican party composed of relatives of Bagdhad Bob? - Catatonia

    by Nebraskablue on Mon Jan 19, 2009 at 07:50:09 AM PST

  •  None of this will ever be fixed (4+ / 0-)

    until there are more jobs that pay a livable wage for regular people.

    The financial system can hum along perfectly, but if regular people don't have a paycheck coming in, this country is going to collapse anyway.

    You can cuss and discuss all you want. This society will continue to be sub-standard until those in positions of power realize that the financial services industry is smoke and mirrors, and that people need real work producing real things to make this country great again.

    Jobs, jobs, jobs, and then, more jobs are the only things that are going to fix this country. Jobs that pay a living wage and can't be outsourced. Jobs at employers who value labor over capital and the almighty bottom line.

    Why is that so hard to see?

    Sometimes I think most of the people who have six-figure jobs -- no matter what their political persuasion -- don't give a good goddamn what happens to the rest of us as long as they continue to make money.

    "It always seems impossible until it's done." - Nelson Mandela

    by Brooke In Seattle on Mon Jan 19, 2009 at 08:02:21 AM PST

  •  With all due respect, this is all too familiar a. (4+ / 0-)

    ...claim:

    "In addition, the program has been a success for one simple reason: the US financial system has not collapsed."

    I've also repeatedly heard from right-wingers that George Bush's "War on Terra" was a success for one simple reason: al Qaeda has not attacked our country again. One does not necessarily follow the other, in either case.

    The main problem with TARP is that it wasn't accompanied by any of the regulation (in some cases re-regulation) that was necessary to ensure that the banks wouldn't simply use the money to play the same games that got them into this mess in the first place.

    I agree with your statement that from this point forward any additional funds handed to these banks must be accompanied by a stipulation that the money be used for pure Tier 1 capital, loan loss reserves, or purchasing distressed institutions.

    However, there's also the problem (which, near as I can tell, is still operative) of the book-cooking schemes that helped to bring this crisis about. There's also the problem of credit default swaps still, to my knowledge, being considered fair game from a regulatory standpoint.

    It's all well and good to loan a gambling-addicted friend enough money to keep his house so that his family doesn't get tossed out on the streets. However, this does no good whatsoever unless you get him away from the casino before you give him the money.

    The financial industry is, at this point, still free to engage in all of the behavior that brought this crisis about in the first place. Without strong, effectively-worded regulation in place to ensure that they don't just go right back to the blackjack table with the money we're giving them, there's no guarantee whatsoever that they won't end up merely pissing this money away by trying to "run it up" via their usual scams... thus ensuring that in the long run these hundreds of billions of dollars will have been wasted.

    •  I love the logic (0+ / 0-)

      The banking system is so essential to the economy that we must spend any amount of money to save it.  Even if it does absolutely nothing but sit there.  Its mere continued existence is its justification.

      •  Well, that leads us to another problem... (0+ / 0-)

        ...the concept of any company being "too big to fail."

        I do understand the concerns over the entire economy tanking far harder than it's been, should the banking industry go under, as the industry is so deeply tied to our economy. I think that a lot of unnecessary scare tactics get used to justify TARP, but there's certainly some truth to the matter as well.

        However, a lot of the problem is also that we're talking about certain banking corporations that are commonly classified as "too big to fail." What floors me is, nobody seems to grasp the fact that when a company becomes "too big to fail", that means that it needs to be broken up into smaller companies that aren't going to hull our economy if they go under.

        Because as we've seen, ANY company can go under. And there was a time when our nation understood the necessity of trust busting to prevent any one company from becoming so large that its failure would pose a direct threat to our continued economic stability.

        It's not too different from the reason a large seagoing vessel is divided up by bulkheads rather than just having one big open space inside the hull. If the ship begins taking on water in one of its compartments, it can be isolated from the other compartments by sealing it off and maybe the ship doesn't sink. But if there's just one big open space there and the ship starts taking on water, chances are much greater that the whole thing's going down.

        A lot of the banking corporations that are getting this TARP money are big enough that they probably need to be broken up, and the current economic crisis is a perfect example of why. "Can't let Acme Bank fail, or it'll take us all down with it."

        No single company should ever be allowed to grow to the point where if it fails it can "take us all down with it." That's not a matter of "punishing success," as hardcore corporatists often tend to argue, but rather of simply not allowing corporations to become economic liabilities due to their size.

        As much as we need to re-regulate the financial industry so that they're no longer allowed to pull the scams that got them (and us) into this jam in the first place, we also need just as much to go back to trust busting as an economic security measure.

        This economic crisis should never have been allowed to happen, and didn't NEED to be allowed to happen. If we cannot learn from this mess, then I don't see how we survive as a nation for much longer

  •  Forget the fucking banks, tough love (3+ / 0-)

    would do them all a lot of good. For God's sake people, does no one see the 9 million pound gorilla in the room, i.e., the lack of American jobs that pay sustainable wages. With all due respect to the diarist, the solutions to America's present economic problems are much deeper and more complicated than the banks' lack of liquidity and/or solvency. America must reinvent itself and remake its economy to create an economic engine that will sustain a middle class. If anyone truly believes bailing out the banks is the solution to remaking our economy and creating an economic engine to sustain the middle class, I believe you will be sorely mistaken. The banks have a role to play, but have historically been in it strictly for themselves. The TARP money would be better spent studying the problem, charting a course of action, and investing in the research, industries, etc. that will create the economic engine of the 21st century.      

    Dreams have a way of betraying you when you use them to escape. Ask yourself why you dream what you dream.

    by brjzn on Mon Jan 19, 2009 at 08:12:09 AM PST

  •  With respect, bonddad, TARP stinks (6+ / 0-)
    Recommended by:
    HeavyJ, Clues, danmac, Tanya, Bronx59, Areopagitica

    Check out this NYT article, for instance. Bailout Is a Windfall to Banks, if Not to Borrowers

    "Make more loans?" Mr. Hope said. "We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans."

    Here is my prescription:

    1. Value each bank assets according to market price. There is no reason for the SEC to allow funny-money accounting.
    1. Let's follow the Republican directive and let them fail. If you try and prop them up, you will need $10 trillion, which we don't have.
    1. Let's have the government be the direct lender to people and corporations at a reasonable rate of interest. The government already owns AIG, Fannie, Freddie and could pick up one big bank on the cheap and use these as implementation vehicles.


    This will stimulate the real economy and kill the banker's house of cards.

    Well? Shall we go? Bush - the proud arsehole of America.

    by whenwego on Mon Jan 19, 2009 at 08:25:41 AM PST

  •  Krugman today says nationalization, outright, (7+ / 0-)

    would be more honest, and makes more sense than this "voodoo" plan. (If I read it correctly.)

    Do you have a response to that?

  •  Sorry, Bonddad, not buying it (9+ / 0-)

    My guess is that much of the anger over TARP has as much to do with how we got here rather than what is actually happening with the program.

    Congratulations, you guessed WRONG.  The anger is precisely based on what is happening now.

    Do you really think that if the government nationalized the banks, fired the executives, and told the speculators to f--- off, that people wouldn't be a whole lot less pissed?

    However, I would caution that the anger be stored away from the current discussion and instead brought out when we discuss reform which will be forthcoming.

    Oh, I get it. We hand all of the money over to AIG and Goldman now and later we ask for it back.  That might be stupidest plan on the face of the Earth.

  •  Bonddad: Don't be a sucker (11+ / 0-)

    The contracts do not contain specific terms but instead use general terms and concepts.  In other words, this is really poor contract drafting.

    It isn't "poor drafting".  It's excellent drafting.  This is how you loot the treasury.  Sorry if the truth hurts.

    From today's NYT:

    At the Palm Beach Ritz-Carlton last November, John C. Hope III, the chairman of Whitney National Bank in New Orleans, stood before a ballroom full of Wall Street analysts and explained how his bank intended to use its $300 million in federal bailout money.

    “Make more loans?” Mr. Hope said. “We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans.”

    Wake the fuck up, Bonddad! The more honest bankers will tell you to your face that they have no interest in loaning more money aka "keeping the economy alive".

    •  nope (0+ / 0-)

      one of them US banks just bought a 19% share of some chinese or singapore bank, I can't find the link.  They're using TARP funds to relocate to foreign countries like corporations use trade agreements to fire US workers and exploit slave wage labor in those countries.

      After 8 years of darkness, a great nation chose to reapply power to the beacon of light America stands for.

      by FreeTradeIsYourEpitaph on Mon Jan 19, 2009 at 10:21:41 AM PST

      [ Parent ]

  •  That's a great analogy... (3+ / 0-)

    It's a bit like lecturing a drunk driver while he's in the emergency room; yes, he needs to be dealt with, but it's more important at that time to keep him alive.  That's what we have to do right now -- keep the economy alive.

    "We've done the impossible and that makes us mighty."

    by Dissento on Mon Jan 19, 2009 at 08:40:24 AM PST

    •  the banking system is not the economy (3+ / 0-)

      and it could be argued that putting all of this money into Wall st actually hurts the economy. In the 4 months since TARP was enacted we have lost 1/2 million jobs a month. So it did nothing to help the ecomony and very well may have done more damage, just as many progressive economists argued it would.

      To sin by silence when they should protest makes cowards of men~~ Abraham Lincoln

      by Tanya on Mon Jan 19, 2009 at 10:16:56 AM PST

      [ Parent ]

      •  can't rec you enough (2+ / 0-)
        Recommended by:
        Tanya, Terra Mystica

        LET US START WITH SUPER POWERS

        Peoples Republic of CHINA GDP - composition by sector:
        Definition Field Listing
        agriculture: 11.3%
        industry: 48.6%
        services: 40.1% (2007 est.)

        https://www.cia.gov/...

        RUSSIA GDP - composition by sector:
        Definition Field Listing
        agriculture: 4.7%
        industry: 39.1%
        services: 56.2% (2007 est.)
        https://www.cia.gov/...

        NOW THE RICHEST COUNTRY IN THE WORLD.. yourstruly’s Switzerland

        SWISS GDP - composition by sector:
        Definition Field Listing
        agriculture: 1.5%
        industry: 34%
        services: 64.5% (2003 est.)

        https://www.cia.gov/...

        NOW LET SEE WHERE YOU DO NOT WANT TO BE..

        USA’s GDP - composition by sector:
        Definition Field Listing
        agriculture: 1.2%
        industry: 19.8%
        services: 79% (2007 est.) wow that is HIGH ,,,
        What is Service Sector?
        https://www.cia.gov/...
        however there is a rather serius problem with HOW usa CALCULATES THE GDP !!!! Susan N. Houseman (our girl) , a good but previously obscure economist with the Upjohn Institute, has discovered a problem in the statistical data that produces phantom US GDP. Phantom GDP results when cost reductions achieved by US firms shifting production offshore are miscounted as US GDP growth. Phantom productivity increases occur when gains from moving design, research and development offshore are counted as increases in US productivity. Obviously, production and productivity that take place abroad are not part of our domestic economy.

        Free trade is America's economic epitaph.

        After 8 years of darkness, a great nation chose to reapply power to the beacon of light America stands for.

        by FreeTradeIsYourEpitaph on Mon Jan 19, 2009 at 10:26:21 AM PST

        [ Parent ]

    •  It's a bogus analogy (0+ / 0-)

      Of course the human life must be saved. It's inherently valuable.   These banks are not.  This reminds of the "heart" analogy - we need these banks to keep money flowing through the economy.  We don't.

      Plus, the drunk driver will be court ordered to get treatment, and subject to jail time if he does not get it.  

  •  Bonddad (0+ / 0-)

    I know you frequent CR, do you post over there under a different handle?

    ~War is Peace~Freedom is Slavery~Ignorance is Strength~ George Orwell "1984"

    by Kristina40 on Mon Jan 19, 2009 at 08:40:31 AM PST

  •  Shrink the US financial system by 50% (9+ / 0-)

    There are too many people working in the US financial system and they are getting paid too much for making negative contributions to the country's well being.

    Focus economic relief on the real economy.

  •  Bondad you don't address (5+ / 0-)

    From the TARP report you cite

    "agrees to work diligently under existing programs, to modify the terms of residential mortgages."
    Not only has it not happened you don't even suggest it should.
    Not only should we nationalize these financial institutions we should demand the answer to New Deal Democrats' question. just what was this terrible catastrophe and what would it look like to most of us?
    We have a long history of being bamboozled by these Henny Penny sky is falling scares. Gulf of Tonkin comes to mind for thosr of my age and then more recently WMD and mushroom clouds.

  •  International repercussions (1+ / 0-)
    Recommended by:
    Econaut

    I haven't seen any discussion of this.  The big banks have a lot of international money invested in them, right?  Isn't there some strong connection between Saudi Arabia and Citi Bank?  If these banks fail, or are nationalized then other countries will lose, along with a lot of ordinary folks here.  So what? you may say.  But shouldn't this at least be brought into our calculations?

    •  yep (0+ / 0-)

      I support sending the executive management of these banks to those foreign investors' countries and they be prosecuted and sentenced according to their laws.  Our justice system is so broken and unjust that I don't think sentencing corrupt bankers to a couple years at a resort-like prison with $10k fines and gold course will satisfy foreign investors.

      After 8 years of darkness, a great nation chose to reapply power to the beacon of light America stands for.

      by FreeTradeIsYourEpitaph on Mon Jan 19, 2009 at 10:16:00 AM PST

      [ Parent ]

  •  just in - Merrill to pay $475 million for fraud (4+ / 0-)

    http://columbus.bizjournals.com/...

    This is just one settlement.

    The hole grows.

  •  THANK YOU (2+ / 0-)
    Recommended by:
    3goldens, Radical Moderate

    for this post.

    Dems have seized the mantle of the Economically Responsible Party and I'd like to keep it that way. This post gives me hope.

    I love my cigar too, but I take it out once in a while.

    by Muskegon Critic on Mon Jan 19, 2009 at 09:09:36 AM PST

  •  TARP reminds me of (3+ / 0-)
    Recommended by:
    3goldens, Tanya, Terra Mystica

    Farmers during the dust bowl attempting to irrigate their fields with buckets.  

    With the worldwide derivatives market valued around 675 trillion, all of it unregulated and almost all of it off balance sheet TARP will do little to effect the overall situation.  Givin how the banks have been spending since the first injections of TARP, the discount window and all of the other special programs at the fed I had thought the primary purpose was to ensure the dividend and compensation systems remained.
    What I have also learned is that the so called deleveraging by our banking sector (both primary & shadow) must be highly overblown.  Heck, when Lehman Brothers went bankrupt they were still levered at 30:1 after 13 months of so called deleveraging.  I will feel much better about our financial system when there is total clarity concerning our financial & insurance institutions balance sheets.  This especially includes Tier II & III assets that have been ballooning as well as whatever is currently off balance sheet.  Again I point to Lehman and say; "If they had no concept of their exposures and positions then how on earth do you expect me to trust the Federal Reserve & the Treasury when they say the banks are in good enough shape?".    

  •  Let them die.... (4+ / 0-)

    Or, declare a bank holiday.  Throwing our money away to pay a fraction of this toxic debt is ridiculous.  What happens when they come asking for more, because they will be asking for more, the $700 billion isn't nearly enough to keep buying all the massive amounts of toxic debt at these inflated prices.  Ridiculous!  

    More on a bank holiday here:

    http://www.thenation.com/...

  •  your reasoning is strikingly similar (6+ / 0-)

    to republicans saying that the bush administration's war on terror has been successful because we haven't had another major attack on US soil.

    not to call you a republican, bonddad, but just that it exhibits the same specious reasoning.

    the banks crashed because they were insolvent. the economy crashed because the people are insolvent. we would have been far better off putting that money into a strengthened welfare safety net to help people ride out this awful crash that will happen regardless, and make-work jobs programs to help people find some employment, than throwing the money at the banks and just kicking the can down the road until obama's president.

    what's the point of propping up a dead economy for a couple of months, at the cost of hundreds of billions that the real economy desperately needs?

    surf putah, your friendly neighborhood central valley samizdat

    by wu ming on Mon Jan 19, 2009 at 09:45:30 AM PST

    •  unfortunately (2+ / 0-)
      Recommended by:
      Terra Mystica, ggwoman55

      I have to agree with you wu.  It is estimated on the contrarian investor websites I actually trust that JP Morgan Chase has $120 trillion in financial derivatives....in other words insolvent.  What their leverage ratio is not known but 30 or 40 to 1 seems to be the measure the spread between banker greed and sanity.  So, if using the lower leverage ratio of 30:1, the principle of JP Morgan Chase 'justified assets' is $4 trillion so as little as a 5% devaluation of their financial derivatives death star means they need a $200 billion botox injection to keep the appearance of a functioning bank.

      After 8 years of darkness, a great nation chose to reapply power to the beacon of light America stands for.

      by FreeTradeIsYourEpitaph on Mon Jan 19, 2009 at 10:04:56 AM PST

      [ Parent ]

  •  How (2+ / 0-)
    Recommended by:
    Tanya, Terra Mystica

    the TARP is going to save banks from being leveraged 30 or 40 to 1 on a quadrillion dollar financial death star whose principal asset values were way overinflated to begin with will forever be a mystery to me.  

    The financial death star is fully energized and its death rays will continue to find its targets.  There are no jedi knights to take it out and the force is not with a TARP which is more like a fireman's tool to catch greedy, stupid bankers jumping out of a burning building.

    Zombie banks have proven themselves to exactly what they are in Japan for 18 or so years straight.

    I don't think bonddad is going to be very happy when the bond market blows out and disintegrates.  I'm not happy or particularly hopeful about much as far as the banking system is concerned.  $8.5 trillion since Aug 2007 of nationalizations and bailouts and hardly a dent in the system.

    After 8 years of darkness, a great nation chose to reapply power to the beacon of light America stands for.

    by FreeTradeIsYourEpitaph on Mon Jan 19, 2009 at 09:51:22 AM PST

  •  Sorry, bonddad (1+ / 0-)
    Recommended by:
    Tanya

    I think you need more exposure to progressive economists.  Start here:

    Plunder and Blunder

    -7.75, -7.64 www.politicalcompass.org "When the intellectual history of this era is finally written, it will scarcely be believable." -- Noam Chomsky

    by scorponic on Mon Jan 19, 2009 at 10:04:14 AM PST

  •  Ah, think your barking up the wrong charts (0+ / 0-)

    TARP, as it was given to the banks from Bush's congress, could not possibly, in any shape, form or etherized relative dimension address the problem. It was not designed to: It was designed to prolong things so Bush etal could get their fat hinnies out of town before the pitchforks and torch crowds came.
    If you could not see this, you truly disappoint me.
    Yes, the financial sector needs help, but if your expecting Bush & Co and a complicit Congress to do anything, you're a moron.

    -7.50/-7.90 Everyone knows I'm out in left field.

    by WiseFerret on Mon Jan 19, 2009 at 10:14:57 AM PST

  •  My observation is that if the first $350B wasn't (0+ / 0-)

    used for lending then lending is not the real problem here.  The money is being used to preserve a lifestyle, not facilitate commerce.

    On a personal level, I have seen no credit crunch whatsoever.  I just bought a car on credit.  My company has a line of credit that it hasn't used.  Offers are being made for other lines of credit.  There is money to lend.  I guess I just don't see the actual problem at the micro level.

    "You may already be a wiener!" Anonymous

    by Terra Mystica on Mon Jan 19, 2009 at 10:19:00 AM PST

  •  We haven't had another 9/11 (3+ / 0-)

    Therefore Bush must have done a good job at protecting America.

     At least that is the same reasoning you are using Bonddad.

    "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

    by gjohnsit on Mon Jan 19, 2009 at 10:24:53 AM PST

  •  It's the bank's insolvency, not illiquidity (2+ / 0-)
    Recommended by:
    wader, Wufacta

    that's the problem. Pouring money into an already-failed enterprise is just a way to give the incompetent and the criminal the people's money so they can turn it into their own tangible assets before the game is completely up.

    Until we get the real balance sheets of all the banks, there's no intelligent action to take. Thomas Friedman, of all people, has called for nationalization of failed banks, the merger of marginal banks, and getting the strong banks more cash after they've written down their toxic assets.

    At that point, we know what we have, and adding liquidity will be possibe.

    From Friedman's op-ed

    No amount of stimulus will work without a healthy banking system....

    ...“Right now,” said David Smick, author of “The World Is Curved,” “the bankers are sitting on mountains of cash, including our bailout money, because they know their true balance sheets are a disaster — far worse than publicly stated.” ...No one trusts the banks, and even the bankers don’t trust each other.” Bringing clarity to bank balance sheets, said Smick, “is the first step to fixing America’s bank lending problem.”

    ...For too long the government has been taking the banks at their own words, which is one reason we keep getting surprised with demands for more bailout cash. The Treasury needs to be doing its own brutal, burn-down analysis of every major bank’s balance sheet — and then acting accordingly.

    ...Postpone the pain, postpone the recovery.

    [my bolding]

    Until we break the corporate virtual monopoly on what we hear and see, we keep losing, don't matter what we do.

    by Jim P on Mon Jan 19, 2009 at 10:36:06 AM PST

  •  Knee-jerk TARP rejection is stupid (5+ / 0-)

    I'm with bonddad on this one.  The main problem with TARP is that it got given to the Bush admin., but I agree with your drunk driver analogy.

    •  Problem is, the drunk's still behind the wheel. (1+ / 0-)
      Recommended by:
      ggwoman55

      As long as the banking industry is still able to play the same book-cooking games and gamble on the same old derivatives, handing it more money isn't going to do anything but ensure that the industry has more money to piss away.

      Re-regulation and trust-busting have both got to accompany any bailout money, or nothing will have any possibility of getting solved.

  •  Bonddad is correct. Jerome a Paris is wrong. (5+ / 0-)

    Just as republicans shouldn't seize an ideological plan to crush unions in this current environment, so should Jerome and others not use this to crush American capitalism.

    It requires fundamental reform, not fundamental destruction.

    •  Our economic system must change. You can (0+ / 0-)

      call it what you will but the status quo and old way of thinking cannot survive.

      RebelCapitalist - Financial Information for the Rest of Us.

      by dennisk on Mon Jan 19, 2009 at 11:34:54 AM PST

      [ Parent ]

      •  No status quo = reform. Not destruction. (3+ / 0-)
        Recommended by:
        Econaut, abrauer, pinkbunny

        Bonddad is making a more sophisticated point about what actually exists and how things actually work.

        Jerome is painting with a broad broad brush, perhaps just splashing paint on a gigantic canvas.

        Our current economic structure was built on failed conservative ideas: no regulation, voluntary compliance, no enforcement mechanisms, minimizing worker protections for corporate profit, shareholders above all others, drowning government in a bathtub, and unfettered markets with no restrictions whatsoever.... on and on...

        And that has failed. That is the status quo, and it has failed.

        That, however, does not mean that nationalizing our financial system is the answer. That would lead only to more upheaval, more conlict, more suffering, and it is simple reactionism.

        The most devastating dictatorships have been founded as righteous opposition to communist organizing, and vice versa. One extreme begets the other. That is not to say that all wisdom is in "the middle" - but it is to say that complex problems require complex solutions.

        And bonddad only points to what the system is, how it really works, and how we can think about working with it to achieve progressive values.

        •  Nationalizing or receivership may be a viable (0+ / 0-)

          option and the most fair to taxpayers.  No one is calling for "communism".  

          RebelCapitalist - Financial Information for the Rest of Us.

          by dennisk on Mon Jan 19, 2009 at 11:45:36 AM PST

          [ Parent ]

          •  You missed it. I was two steps out, not one. (0+ / 0-)

            The radical reactionaries on the left holding a position similar to Jerome's would be ACCUSED of communism and engender a totalitarian backlash from hell that we can't allow, if history is our guide.

            We can forge a complex solution to complex problems without sacrificing our principles.

    •  I don't want capitalism crushed (1+ / 0-)
      Recommended by:
      ggwoman55

      I want to see corporate idiots at the executive level crushed.

      pre-emptive war · collective punishment · torture | 21st century values

      by The Dead Man on Mon Jan 19, 2009 at 01:58:24 PM PST

      [ Parent ]

  •  Ooh, charts and graphs (0+ / 0-)

    as if a few fancy graphics could convince us that the wall street barons were not robbing people blind. I'm sorry, bonddad, but this is b.s. it's economic b.s., couched in the types of charts that would convince us that the TARP is reasonable and a required action, but b.s. nonetheless. Perhaps you are defending TARP because it protects people who shuffled paper around (like yourself) pretending to create value when they were actually creating crap.

    Why don't you explain to us why CDOs were ever allowed to happen, or how naked short-selling is not a crime punishable by jail time?

    Or why all the people who made money off this bubble aren't spending time in jail or returning the money they stole from their investors.

    No sympathy, bonddad, no sympathy.

    •  I honestly didn't see this diary as attempting to (1+ / 0-)
      Recommended by:
      Time Waits for no Woman

      elicit sympathy for the people who took advantage of Republican-led policies in order to create a greed-based, shortsighted, practically immoral house of cards.

      He's offering a take on what to do next.

      "So, please stay where you are. Don't move and don't panic. Don't take off your shoes! Jobs is on the way."

      by wader on Mon Jan 19, 2009 at 11:45:19 AM PST

      [ Parent ]

  •  AmEx gets $3.4 billion, cuts consumer credit 50% (3+ / 0-)
    Recommended by:
    dennisk, MKSinSA, Econaut

    So American Express Corp is so low on cash that it may not be able to cover operations, right? They gets themselves $3.4 billion in TARP funds (#) so as to stay solvent, make loans, and so on.

    What is it you think they do?

    Invest the TARP funds in T-Bills, of course! I hear you say "But then they won't be able to cover operation expenses." Ah, well, no problem: They just cut the credit limits. 50%. No notice, no warning-BANG! No credit.

    TARP is a case study in how to shrink available credit by throwing money at financial firms.

    Here's a concept that's new: send 1/2 billion to every community bank in the country to offer credit to small businesses, and then let's see what happens.

    Muphry's Law: if you write anything criticizing editing or proofreading, there will be a fault of some kind in what you have written.

    by opendna on Mon Jan 19, 2009 at 11:01:54 AM PST

  •  Biggest problem I have with this is (0+ / 0-)

    no or weak executive pay limits. Those that got us into this mess should not be rewarded. The repubs (and some democrats) are talking about union givebacks, but aren't really addressing obscene CEO salaries .
    another issue is what I heard from a banking spokesman " the number 1 goal is to make banks profitable. " An institution that chargers usury interest rates on credit cards and whose main innovation seems to be new and creative fees on consumer lost record amounts of money. Right now we are paying as taxpayers and getting screwed as consumers. Maybe its time to rethink these institutes , they have always favored the wealthy.  

    Patriotism consists not in waving the flag, but in striving that our country shall be righteous as well as strong. ~James Bryce

    by california keefer on Mon Jan 19, 2009 at 11:27:14 AM PST

  •  TARP= (0+ / 0-)

    shoveling money into a furnace. Ive never seen such an ourageous theft of American taxpayer money by the upper class. The sadder part, is watching Americans take it from behind, all the while doing absolutly nothing to stop it.

    I love the smell of napalm in the morning

    by Jazzenterprises on Mon Jan 19, 2009 at 11:49:29 AM PST

  •  C'mon (4+ / 0-)
    Recommended by:
    Indiana Bob, Tanya, ggwoman55, MKSinSA

    Bondad, you're starting to sound like Bush

    In addition, the program has been a success for one simple reason: the US financial system has not collapsed.

    That's like Bush arguing that the War in Iraq is a success because the US has not been attacked since 9/11.

    I can live with doubt and uncertainty and not knowing. I think it is much more interesting to live not knowing than to have answers that might be wrong- Feynman

    by taonow on Mon Jan 19, 2009 at 11:58:50 AM PST

  •  LIAR - Defending W makes you a traitor (0+ / 2-)
    Recommended by:
    Hidden by:
    Wufacta, abrauer

    and no better than theives that perpetrated this fraud on the taxpayers.

    Regulation is necessary bailouts are not.

    "It stinks." - Jay Sherman

    by angry liberaltarian on Mon Jan 19, 2009 at 12:32:57 PM PST

  •  The American Citizen has not been profitable (0+ / 0-)

    for the last 40 years.

    just sayin'...

    McCain/Palin '08 - Government Sucks and We'll Prove It!

    by k9disc on Mon Jan 19, 2009 at 12:58:36 PM PST

  •  In Any Event, (1+ / 0-)
    Recommended by:
    MKSinSA

    does it not appear that the main consequence of the Bush-Republican reckless spending and the banking industry's reckless greed and incompetence is that ordinary Americans will end up having their Social Security and Medicare benefits cut?  This seems fair.

  •  Buck dat! (0+ / 0-)

    Repossess the TARP money already handed out, and give it to people with mortgages. That'll directly relieve first, the human beings, and that'll trickle down onto the bankers.

    If they've already spent it on conferences and paying their debts (but all reports say they are just holding on to it) then take it directly out of the bankers' personal accounts, or their hide.

    Socialism: it's not just for the filthy rich anymore!

    Until we break the corporate virtual monopoly on what we hear and see, we keep losing, don't matter what we do.

    by Jim P on Mon Jan 19, 2009 at 01:02:11 PM PST

  •  mayhap its' not a system worth saving... (1+ / 0-)
    Recommended by:
    MKSinSA

    We apologize for this sig line. Those responsible have been sacked.

    by bnasley on Mon Jan 19, 2009 at 01:28:53 PM PST

  •  TARP makes sense ONLY (2+ / 0-)
    Recommended by:
    davidkc, MKSinSA

    if there is an enforceable and enforced plan on how these institutions use the money; and if that plan actually is designed to help EVERYONE in the economy...not just overpaid executives who should actually be in prison.

    When a government violates the unalienable rights of the people, it loses its legitimacy.

    by Rayk on Mon Jan 19, 2009 at 01:49:40 PM PST

  •  No biggie either way at this point (0+ / 0-)

    To attempt a recall of a SNL "Tender Moment": "You KNOW that, if you drive off a cliff, you're STILL gonna try and use the brakes and steering wheel."

    We find out soon enough.

    The main difference between the 110th and the 111th: One less Bubble, One more Shaft...

    by grndrush on Mon Jan 19, 2009 at 02:25:41 PM PST

  •  Bullshit detector (0+ / 0-)

    just went off. If printing money was the secret, Zimbabwe would be the richest nation on earth.

    The smart people in this room are leading everyone off of a cliff.

  •  If they're so cheap, let's buy them (0+ / 0-)

    I'd be much more comfortable putting scads of money into an entity that I controlled--who wouldn't?

    -5.38/-3.74 We're currently in a sig interregnum. A siggie vacante, as it were.

    by Rich in PA on Mon Jan 19, 2009 at 02:50:16 PM PST

  •  Bonddad - recital clauses in contracts are not (1+ / 0-)
    Recommended by:
    MKSinSA

    binding - they are window dressing that provide background and context for the contract but do not impose legal obligations. So those entities that have received TARP funds to date have no legal obligation to modify mortgages or ease the flow of credit regardless of the pretty words in the recital clauses to that effect.

  •  The only cure... (0+ / 0-)

    The only cure for ignorance is confession. I have only the most cursory understanding of finance. I confess.

    I have been wondering about a few basic questions.

    Before all of this began to show up in the news, what was the total amount of arrears on residential mortgages? How many mortgages were in arrears? What if we had put the same amount of money that we put into TARP into a combination of relief (bringing current all mortgages and adding that in to the payment for the same), restructuring (turning into fixed rate mortgages with rates affordable by mortgage holders), and recovery (a process of getting people out of poroperties they can't possibly afford but in a way that avoids foreclosure and gives the former homeowners some equity out for payments made).

    Is it possible that this might have been more effective?

    We leapt immediately to institutional rescue. But if we took a "too SMALL to fail" approach, could we have been better off?

  •  2 different problems need 2+ different solutions (2+ / 0-)
    Recommended by:
    Time Waits for no Woman, Econaut

    Problem one:  The banks are insolvent and their creditors (you and me and our friends abroad) should be protected lest we really see 1931-33 all over again.  Contributing cash to the banks is one way to do this, another is to just guarantee the banks' obligations.  The Treasury is doing both.  Both will end up costing income tax payers, and that's ok.

    Problem two:  Companies with good business plans can't borrow because the banks either can't or won't lend  Why would able banks not want to lend?  If there's a prolonged recession even well-executed business plans will lose money.  Solution:  the government ought to either lend directly to operating companies or, as the U.K. is doing, commandeer the banks for that purpose.

    But quite obviously giving cash to insolvent entities isn't going to lead to those entities making risky loans.  Lots of people could see that coming a mile or two away.

    Buying crap assets from these banks?  A manifestly bad idea that just won't die.

  •  Exellent Diary (0+ / 0-)

    And I agree that TARP is necessary

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