Skip to comments.Inspector General: TARP Has Created a Looming Disaster
Posted on 02/03/2010 10:25:10 AM PST by pissant
For all the phony talk coming out of the White House this past year about transparency and accountability, there actually is an institution outside of the executive branch which does a pretty darn good job at this most of the time: the Inspector General system. In fact, IGs may do too good of a job by producing lengthy and meticulously detailed reports, difficult even for politically-attuned readers to digest, and which usually do not contain the types of partisan zingers that attract a lot of media attention.
Yesterday the Inspector General for the Troubled Asset Relief Program (SIGTARP) released their Quarterly Report to Congress for the period ending 12/31/2009. The executive summary tells us all we need to know about their assessment of the TARP initiatives over the past year. This whole segment is a MUST READ (its not a pretty picture):
The substantial costs of TARP in money, moral hazard effects on the market, and Government credibility will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, or five, or ten years time. It is hard to see how any of the fundamental problems in the system have been addressed to date.
* To the extent that huge, interconnected, too big to fail institutions contributed to the crisis, those institutions are now even larger, in part because of the substantial subsidies provided by TARP and other bailout programs. * To the extent that institutions were previously incentivized to take reckless risks through a heads, I win; tails, the Government will bail me out mentality, the market is more convinced than ever that the Government will step in as necessary to save systemically significant institutions. This perception was reinforced when TARP was extended until October 3, 2010, thus permitting Treasury to maintain a war chest of potential rescue funding at the same time that banks that have shown questionable ability to return to profitability (and in some cases are posting multi-billion-dollar losses) are exiting TARP programs.
* To the extent that large institutions risky behavior resulted from the desire to justify ever-greater bonuses and indeed, the race appears to be on for TARP recipients to exit the program in order to avoid its pay restrictions the current bonus season demonstrates that although there have been some improvements in the form that bonus compensation takes for some executives, there has been little fundamental change in the excessive compensation culture on Wall Street. * To the extent that the crisis was fueled by a bubble in the housing market, the Federal Governments concerted efforts to support home prices as discussed more fully in Section 3 of this report risk re-inflating that bubble in light of the Governments effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market.
Stated another way, 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.
But dont worry, its a hybrid.
I am sure the Administration will argue that this report only reinforces the need for the financial regulatory reforms they are attempting to push through Congress. Congress, of course, is likely to water down these proposals due to intense lobbying by the financial industry. But even if they are passed as proposed, they would only slightly mitigate the risk factors identified above. By placing some new limits on the risk-taking behavior of very large financial institutions, and by mandating much broader, and more integrated, regulatory oversight of the financial industry.
Notably, the reforms proposed by the Administration would do nothing to address the systemic risk posed by the federal governments effective takeover of the residential mortgage industry. Given that the government-brokered inflation of the housing market was the root cause of this crisis to begin with, the fact that the federal government is now underwriting or insuring virtually all new mortgage loans, and has purchased well over $1 trillion of existing mortgage-backed securities, should be of great concern to us all.
The White House is in the midst of a campaign to focus populist anger on Wall Street, which is certainly deserving of some blame for the financial crisis. But by continuing to leverage the future of our children by adding trillions of dollars more to our national debt over the next few years, the Administration is demonstrating where the ultimate blame should reside for the culture of irresponsible borrowing and financial mismanagement which led us to this point. Its not Wall Street its Pennsylvania Avenue.
I had an insight at the bank today when I converted electronic digits to cash $100 dollar bills.
In the current state of money and Liberty counterfeiters are doing Liberty a great service by creating alternate sources of wealth, distributed alternatives to the Government and Fed run wells of money that are fiercely protected by insiders.
In 2010 counterfeiters, black marketeers, under the table wage earners are being Patriotic Americans and supporting Liberty versus an insane despotic Federal tyranny.
That is an outstanding contrarian viewpoint. I like it.
How do we get an injunction prohibiting congress from legislatin’? Everything they do has a reverse midas touch...that sticks We the People with the consequences of their stupidity and perversion.
What was interesting to me that the two young men at the bank branch agreed with that sentiment.
WE ALL SEE THE FEDERAL GOVERNMENT, TREASURY AND FEDERAL RESERVE OF 2010 AS A MASSIVE CRIMINAL ENTERPRISE presenting a clear and immediate danger to all of us, and to the continuance of the Republic.
It is a strange day when the regular criminal Mobs have more morality and ethics than the government — specifically with regard to money, enterprise and finance. Not good, but there it is.