Post
by Simon of the Playa » Fri Feb 06, 2009 7:29 am
and if you think Burning Man Screwed You, how about Hank Paulson?
he stuck it so far up our collective asses that it came out of our mouths and is resting just under the tip of our collective noses.
smells like shit, huh?
TARP robs $78 billion in taxpayer cash
Posted Feb 6th 2009 9:42AM by Peter Cohan
Filed under: Economic data, Recession, Financial Crisis
The Congressional Oversight Panel (COP) reports today that Hank Paulson's Troubled Asset Recovery Plan (TARP) stole $78 billion of our money. This sounds like a huge under count to me -- I would put the figure at much closer to $350 billion. The questions now are what to do about TARP and whether similar waste can be prevented for the next $350 billion.
How did COP arrive at the $78 billion? It claims that TARP received bank assets worth $176 billion in exchange for capital purchases of $254 billion. Two hundred banks have gotten TARP money so far. In addition to assets, TARP has gotten preferred stock and warrants in exchange for its cash. And I would guess that the amount taxpayers have lost is well in excess of the $78 billion.
How so? First, the assets probably do not trade, therefore they could be worth much less than models estimate. And second, the COPs' calculations appear to exclude the decline in value of the preferred stock and warrants that has probably occurred since bank stocks have fallen so much in the last several months. Moreover, the bigger question that remains unanswered is this: What specific benefits, if any, has the global financial system gotten as a result of the $350 billion already spent -- (a fraction of the $9 trillion in capital outlays and guarantees made so far)?
The standard answer appears to be that the system would have collapsed without TARP. While this "argument" seems to "work" for some people, I find it completely unconvincing. I have not heard one specific explanation that connects the TARP money to blocking the failure of the financial system.
What would help convince me is if someone could demonstrate that a specific part of the financial system -- say an individual bank -- would have failed if it had not received the TARP money. Moreover, I would like to see an explanation of how that bank failure would have caused the entire financial system to collapse along with that bank. Finally, I would like to understand how getting that money would be more cost-effective for taxpayers than an orderly bankruptcy filing.
Meanwhile, the question remains of what to do with the next $350 billion. As I posted, I would like to put the money into my colleague's plan -- to let the FDIC buy the, say, 15% of bad mortgages out of Mortgage-Backed Securities (MBSs) and Collateralized Debt Obligations (CDOs). This FDIC buy would let those MBSs and CDOs trade at 90% of their face value and would relieve financial institutions of their hundreds of billions of Level 3 assets which are dragging down the system. The FDIC could then use its control of the mortgages and its skill at restructuring to help struggling homeowners.
The $78 billion taxpayer ripoff on TARP I is on Hank Paulson, let's hope Tim Geithner does not make the same mistakes with TARP II.
Frida Be You & Me
