Neil Barofksy's Latest Musing On TARP

Author:
Publish date:

SIGTARP's Neil Barofsky released the agency's quarterly report today and $700 billion later, this is where we stand: the program not only didn't help anything but had an opposite effect; TARP money is being used to investigate banks' TARP-related insider trading and Geithner is full of crap.

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car."

Happy Monday.


Barofsky thinks that many of TARP's stated goals have "simply not been met," as the huge, interconnected, "too big to fail" institutions that contributed to the crisis, are now even larger, because of TARP. Good thinking, kind of late in the game, but good thinking.
Along the same lines, institutions that were previously incentivized to take reckless risks through a "heads, I win; tails, the government will bail me out" mentality, are even more convinced than ever that the government will step in as necessary to save them. And regarding bonuses, "there has been little fundamental change in the excessive compensation culture on Wall Street."
Last but not least, to the extent that the crisis was fueled by a "bubble" in the housing market, the Federal Government's concerted efforts to support home prices risk re-inflating that bubble in light of the Government's effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market.
Also, we're happy to learn that SIGTARP has 77 ongoing criminal and civil investigations, including TARP fraud, accounting fraud, securities fraud, insider trading, bank fraud, mortgage fraud, mortgage servicer misconduct, fraudulent advance-fee schemes, public corruption, false statements, obstruction of justice, money laundering, and tax-related investigations.
Finally -no breaking news here, but worth mentioning- Geithner et al are full of crap regarding AIG:

The now familiar argument from Government officials about the dire consequences of basic transparency, as advocated by the Federal Reserve in connection with Maiden Lane III, once again simply does not withstand scrutiny. Notwithstanding the Federal Reserve's warnings, the sky did not fall; there is no indication that AIG's disclosure undermined the stability of AIG or the market or damaged legitimate interests of the counterparties.

Report [SIGTARP]

Related

TARP Charts!

The Federal Reserve has this new paper out about TARP that does a bit of highly suggestive eyebrow raising about some banks that shall remain nameless. They start from the awkward fact that TARP wanted everything in one bag but didn't want the bag to be heavy, or as they put it: The conflicted nature of the TARP objectives reflects the tension between different approaches to the financial crisis. While recapitalization was directed at returning banks to a position of financial stability, these banks were also expected to provide macro-stabilization by converting their new cash into risky loans. TARP was a use of public tax-payer funds and some public opinion argued that the funds should be used to make loans, so that the benefit of the funds would be passed through directly to consumers and businesses. So you might reasonably ask: were TARP funds locked in the vault to return the recipient banks to financial health, or blown on loans to risky ventures, or other? Well, here is Figure 1 (aggregate commercial and industrial loans from commercial banks in the U.S.): So ... not loaned then. But that's not important! The authors are actually looking not primarily at aggregate amounts of loans but at riskiness of loans and here's what they get: