TARP IG: Feds lied about banks being healthy last year

posted at 10:55 am on October 5, 2009 by Ed Morrissey

Neil Barofsky’s latest report on the TARP-funded bailout of banks last October contains the explosive allegation that the Bush administration lied about the health of the banks that received massive cash infusions.  Nine banks got billions of dollars from the TARP funds, ostensibly to help shore up confidence in the American financial sector, while Henry Paulson declared them “healthy.”  Instead, Barofsky now says at least some of those nine institutions were in serious trouble when they got the cash infusions:

On Oct. 13, after Congress had passed the $700 billion financial bailout program earlier that month, Treasury provided capital injections for nine institutions that together held over $11 trillion in assets: Bank of America, Citigroup, Wells Fargo, JP Morgan Chase, Goldman Sachs, Morgan Stanley, Merrill Lynch, State Street and the Bank of New York Mellon. As of June 2008, these nine banks accounted for around 75 percent of all assets held by U.S. banks.

In announcing the initial $125 billion provided to these banks, former Treasury Secretary Hank Paulson on Oct. 14 said, “These are healthy institutions, and they have taken this step for the good of the U.S. economy. As these healthy institutions increase their capital base, they will be able to increase their funding to U.S. consumers and businesses.”

That same day, the Treasury Department, the Federal Reserve and the FDIC also released a joint statement reiterating that “these healthy institutions are taking these steps to strengthen their own positions and to enhance the overall performance of the US economy.”

Barofsky finds, however, senior officials at the Treasury and the Fed had serious concerns about the health of some of these banks. Fed chief Ben Bernanke, for one, told the watchdog that the central bank believed each of the nine institutions faced certain risks given the economic environment.

This explains why these “healthy” institutions did not transform those infusions into easy credit.  Both the Bush and Obama administrations have taken heat from Capitol Hill and the media for not pressuring the TARP recipients into expanding their lending after getting hefty chunks of taxpayer money.  Barofsky merely confirms what most of us suspected from the beginning, which is that the government wouldn’t have bothered to bail them out if they didn’t need the money.

Barofsky notes that this will damage the credibility of the American government on financial matters in the future.  That’s true, but the damage done by Congress and succeeding administrations goes far beyond lying about the health of these nine institutions.  The financial crisis got triggered by heavy-handed intervention in lending markets, and has been exacerbated by massive spending on so-called stimulus programs that have not stemmed unemployment or resulted in a recognizable recovery.  This administration has already had to admit a $2.2 trillion error in its calculations on long-term deficits, which hardly lends to its credibility, either.

In the long run, few people will regard the Paulson cheerleading as one of the more egregious bungles by the federal government connected to this collapse.


Related Posts:

Breaking on Hot Air

Blowback

Trackbacks/Pings

Trackback URL

Comments

I think they take an oath before testifying… let the prosecutions begin.

CC

CapedConservative on October 5, 2009 at 10:57 AM

Barofsky notes that this will damage the credibility of the American government on financial matters in the future.

And the federal government’s credibility was just tip-top before that! /sarc off

WashJeff on October 5, 2009 at 11:00 AM

Shocker. Michelle called out Paulson long before anyone.

vcferlita on October 5, 2009 at 11:01 AM

All the more reason to continue trusting that the government has our best interests in mind. Someone needs to go through the government and the budget with both an axe and a sledge hammer. No scalpels.

Wrecking Balls.

ted c on October 5, 2009 at 11:02 AM

The government lies to us…and in a time of crisis, you say? *gasp*, OMG.

NickelAndDime on October 5, 2009 at 11:02 AM

I can’t wait until they start running my family’s healthcare. They are so good at everything else (sarc.)
 
Their liberal/communist ideology is far more important to them than the truth.

ClanDerson on October 5, 2009 at 11:04 AM

Yeah, the feds lied about this stuff, but I’m sure they are going to be honest about the Obamacare, Social Security, Maedicare and the projected deficit.

myrenovations on October 5, 2009 at 11:04 AM

So Bush’s Admin lied but did the right thing at the time. Uh, OK. I’m not sure how I feel about that other then to say that, in contrast the current admin lies and does the wrong thing, consistently.

I agree with the broader pointer here though, even if TARP was necessary, which many have said it was, the underlying problem was NEVER addressed. Government interference and coercion of banks to loosen lending requirements and take on excessive risk. This is STILL happening. As Hot Air is fond of asking; What could go wrong?

drocity on October 5, 2009 at 11:04 AM

Considering the fact that institutions that aren’t even banks have been bailed out because they are/were “too big to fail”, this seems like a footnote and nothing more.

This whole thing was a boondoggle begun by the Bush administration and then doubled-down on by the Obama Presidency.

Asher on October 5, 2009 at 11:04 AM

uh…. “point”, not “pointer”. (Note to self: Use the preview button it is your friend.)

drocity on October 5, 2009 at 11:06 AM

see this is why Ken Lewis of BofA was frakked.

he did the same thing Paulson and Bernanke did, he made like MER was all okay and bought it to save the economy at the urging of Hank and Ben

then the second shoe dropped and the DEMS led by Frank with Kucinich and (Issa helped them BTW), were ALL OVER lewis like a cheap suit

that is why he is stepping down and we are looking at some half axxed interim CEO

Ironically the MER acquisition is what gave BofA all their earnings the quarter after the deal

I am a shareholder of both cos BTW

it just is wrong that Lewis is getting the boot for somehting our leadership did as well on a MASSIVE SCALE BS us to make the markets relax.

ginaswo on October 5, 2009 at 11:06 AM

Barofsky merely confirms what most of us suspected from the beginning, which is that the government wouldn’t have bothered to bail them out if they didn’t need the money

Somehow saying “I told you so” doesn’t make me feel any better…

lovingmyUSA on October 5, 2009 at 11:06 AM

Those same banks are still largely in trouble, which is why they still aren’t lending. The toxic assets are just as toxic today as they were last year–little to nothing has been done about them (and the only thing which can be done is for the losses to be recognized.) That they are vastly overpriced on the books is the only reason the banks aren’t insolvent. The reality is, however, many of the largest banks in this country are indeed insolvent. Accounting changes never alter economic reality, only perception of reality.

flyfisher on October 5, 2009 at 11:07 AM

Barofsky notes that this will damage the credibility of the American government on financial matters in the future

I find this to be a good thing since it ought to lead to limited government. How anyone who takes responsibility for his or her own financial affairs would trust politicians comprising the ‘goverment’ is beyond me. Politicians espousing ever expansive government expenditures (as ‘investments’ that make the politicians look good) ought to have no credibility.

clorensen on October 5, 2009 at 11:10 AM

This is news?

obladioblada on October 5, 2009 at 11:10 AM

Two things, first, did anyone believe that these companies were healthy given the end of the world scenario TARP was pushed through? Second, aren’t most of these organizations set up into to separate entities so that a failure in one area, i.e. sub-prime mortgage loans, doesn’t collapse the whole institution?

Cindy Munford on October 5, 2009 at 11:11 AM

Government overseeing banks. What could go wrong?
Government overseeing healthcare. What could go wrong?
Government overseeing education. What could go wrong?
Government overseeing climate change. What could go wrong?

Thank goodness we have experts watching out for us. If it was not for them, we would just sit around drooling in our Cocoa Puffs.

fogw on October 5, 2009 at 11:13 AM

I hate to say this, but I agree with Ron Paul. It is way past time to audit the Fed. I suspect this is just the tip of a very big ice berg.

Johnnyreb on October 5, 2009 at 11:14 AM

I can’t find the appropriate words to describe the disgust and disdain I feel for every aspect and facet of this administration! It is utterly clueless. I feel like they truly won’t be happy until we’re a socialist or communist third world country. AND I’M PISSED!

DougDavis on October 5, 2009 at 11:19 AM

Not only have they lied, they (the FED, Feds, CNBC, Wall Street stock pimps, etc) continue to lie. For those who haven’t figured it out: this market rally is FAKE. I believe the manipulation began about the time Obongo told everyone it was a good time to buy stocks.

flyfisher on October 5, 2009 at 11:19 AM

Henry Paulson lied, the US economy died. We haven’t actually been buried yet so if someone could hit us with the paddles, we might be up off the gurney instead of rolled out with the sheet over our head.

Blacksmith8 on October 5, 2009 at 11:19 AM

Yep and Bush lied about AMNESTY as well.

And yes, everyone knew BoA was teamed with ACORN to give loans to illegals, didn’t they? It was obvious to anyone even remotely involved in real estate.

So now we know why the US economy blew up, giving loans for homes to people who had no way to repay the loan.

Government lies, but it promises to tell the truth about government rationed healthcare, right? WHY?

tarpon on October 5, 2009 at 11:21 AM

All the more reason to continue trusting that the government has our best interests in mind. Someone needs to go through the government and the budget with both an axe and a sledge hammer. No scalpels.

Wrecking Balls.

ted c on October 5, 2009 at 11:02 AM

Ted C for wrecker driver. Have you seen Ronnie’s EO on Federalism?

Blacksmith8 on October 5, 2009 at 11:23 AM

And this is a surpise? Taking an oath, raising a hand and swearing is meaningless, they will still lie. The financial system is rotten to the core. Just wait till the OTC derivatives mess, commercial real estate and dollar collapse hits the fan. There will be no place to hide, except for owing gold.

PatriotRider on October 5, 2009 at 11:25 AM

Didn’t Paulsen have ties to Goldman Sachs?

Try em and hang em, along with Barney Frank, Chris Dodd and any other defenders and promoters of Fannie and Freddie, Rahm Immanuel, Jamie Gorelic, James Johnson, Barneys Boyfriend tar feather and throw em in a federal pen with the lifers!

dhunter on October 5, 2009 at 11:26 AM

They all LIE. (Politicians and bureaucrats that is.)

this will damage the credibility of the American government

nolapol on October 5, 2009 at 11:28 AM

There is so much more under the waterline here. Paulson did what any good Fed member would do and cover the scheme with a coat of fresh paint (billions if not trillions) even though the sinking ships hull is rusting out to a paper thin thickness from the inside out. It is only a matter of time before the outside water pressure (American Public) scuttles this sinking ship for good.

Goldman Sachs and Morgan Stanley need to go away with the Fed as well. These two “banks” and the Fed have done more damage to our country then all the wars we have fought combined. Talk about constructive fraud of galactic proportions!

0321_GUY on October 5, 2009 at 11:30 AM

This is kind of silly. TARP was created because the banks were not healthy. Everyone knew the banks weren’t healthy. That is why they needed TARP money. But the thing is that TARP was used for a different purpose that it was pitch for. It was pitched for the government to purchase the most toxic of the assets to clean up the balance sheets of the banks and make them healthier. Instead, the cash was injected into the banks’ reserves. This left the bad loans with the banks but gave them some reserves to cover defaults.

That works fine if you expect the housing crunch to be short lived. What has happened, though, is that even more loans are going under, prime loans even. Those reserves will evaporate as the loans default.

The housing crash is resulting in a destruction of wealth not seen since the stock market crash of 1929. Congress was warned about this very thing happening starting in 2001. Senate Democrats filibustered every single attempt to reform it.

crosspatch on October 5, 2009 at 11:30 AM

fogw on October 5, 2009 at 11:13 AM

Yet Leftists tell us they do not want government control of everything.

The fundamental issue with TARP—too much is bad:

I agree with the broader pointer here though, even if TARP was necessary, which many have said it was, the underlying problem was NEVER addressed. Government interference and coercion of banks to loosen lending requirements and take on excessive risk.

drocity on October 5, 2009 at 11:04 AM

Same problem with ARRA. And ObamaCare. And FICA. And the rest of the federal tax code. And…

ConScribe on October 5, 2009 at 11:31 AM

They were so healthy, they needed TARP…….

Vashta.Nerada on October 5, 2009 at 11:31 AM

And while we’re at it, Arizona, throw out that abject fool and pandering Old McCain who suspended his pathetic campaign just when Sarah was about to pull it out for him and threw free enterprise, capitalism, the Republican Party and American Taxpayers to the wolves, Throw HIM out and anyone else that voted for this ripoff.
Capitalism has the means to cure its ills Government has no business meddling! Hell, THROW EM ALL OUT!

dhunter on October 5, 2009 at 11:32 AM

One of those TARP recipients American taxpayers bailed out, Chase Bank, just jacked my Visa card interest rate from 14% to 24% for no reason other than they could. I closed the account immediately, and will pay it off at the lower rate.
The Chase representative (in Bangladesh or somewhere similar) said it had “nothing to do with me, but with market conditions and pending laws”. I told him it had EVERYTHING to do with me, since it was MY Visa card that was getting jacked.
One hell of a business model: screw those that saved you.
I want my money back. At 24% interest.

bradley11 on October 5, 2009 at 11:34 AM

Yep and Bush lied about AMNESTY as well.

And yes, everyone knew BoA was teamed with ACORN to give loans to illegals, didn’t they? It was obvious to anyone even remotely involved in real estate.

tarpon on October 5, 2009 at 11:21 AM

The code words were “Bank of Opportunity” and the illegals jumped on it…I grew very suspicious when my mother’s illegal alien cleaning lady was able ot get a home loan…

CCRWM on October 5, 2009 at 11:35 AM

I hate to say this, but I agree with Ron Paul. It is way past time to audit the Fed. I suspect this is just the tip of a very big ice berg.

Johnnyreb on October 5, 2009 at 11:14 AM

I think there needs to be some serious examination about where our tax dollars are going. Paul, however, isn’t out for fiscal responsibilty as much as he wants to turn the whole thing into a vendetta and witch hunt.

highhopes on October 5, 2009 at 11:36 AM

I think everybody knew from the start that Paulson was talking out his nethers…if these banks were supposed to be healthy, why did they need the money? Why include the word ‘Troubled’ in TARP?

James on October 5, 2009 at 11:36 AM

One of those TARP recipients American taxpayers bailed out, Chase Bank, just jacked my Visa card interest rate from 14% to 24% for no reason other than they could. I closed the account immediately, and will pay it off at the lower rate.
The Chase representative (in Bangladesh or somewhere similar) said it had “nothing to do with me, but with market conditions and pending laws”. I told him it had EVERYTHING to do with me, since it was MY Visa card that was getting jacked.
One hell of a business model: screw those that saved you.
I want my money back. At 24% interest.

bradley11 on October 5, 2009 at 11:34 AM

It’s the Obama law of fairness ,the banks aren’t allowed to charge different rates for different risks.
You did the only right thing.

the_nile on October 5, 2009 at 11:36 AM

here’s why this is so harmful, long term – what are you going to believe the next time that a bank is being propped up to “give people confidence”? And there will be a next time, in fact we are very close to that point with the FDIC itself.

Based on your knowledge of past events, you and everyone else are going to know that whatever is in question is on the verge of collapse, no matter what the government says. That cat is out of the bag. What’s more, you will now *act* as though the instititution in question is on the verge of collapse, meaning that you and all others (ie, the markets) are going to act in a way that counteracts all the intended effects of the government actions.

From now on, all actions taken to increase confidence will actually decrease it. That is the price that we are going to pay.

WWS on October 5, 2009 at 11:37 AM

Is anyone really surprised by this?

We will NEVER know how many billions of dollars have just disappeared into pockets. Between Wall Street and Washington stealing, of course there isn’t enough money for the economy to be healthy.

Stephanie on October 5, 2009 at 11:37 AM

Two things, first, did anyone believe that these companies were healthy given the end of the world scenario TARP was pushed through?

I’m calling crap on this latest revelation. Who is benefitted the most by changing the story? (Hint: it’s the Obama/Biden team) Bernanke’s quote (below) is the most damaging evidence Barofsky chooses to release? C’mon. TV commercials for E-Trade have scarier “potential loss” statements than this.

Fed chief Ben Bernanke, for one, told the watchdog that the central bank believed each of the nine institutions faced certain risks given the economic environment.

Hahahahahaha! Certain risks. Why weren’t we told about “certain risks” before? I love it. Does this mean you might lose your ass in the stock market or banking industry if people stop buying stuff? Wow. Who’d a thunk it? As astronaut Dave once said: “it’s all very clear to me now”. Right.

Second, aren’t most of these organizations set up into to separate entities so that a failure in one area, i.e. sub-prime mortgage loans, doesn’t collapse the whole institution?

Cindy Munford on October 5, 2009 at 11:11 AM

No. Set up as different entities with levels of liability yes, but not immune to bad management, stupid government regulation and massive debt.

This whole story is the setup to the Obama Administration playing a trump card. A big one. Soon, Biden will come out and beg the citizenry to “gird our loins” for the draconian acts about to come out of our government.

BobMbx on October 5, 2009 at 11:38 AM

The code words were “Bank of Opportunity” and the illegals jumped on it…I grew very suspicious when my mother’s illegal alien cleaning lady was able ot get a home loan…

CCRWM on October 5, 2009 at 11:35 AM

You can rest peacfully knowing that you are a part owner in that very house.

Quit yer bitchin….

BobMbx on October 5, 2009 at 11:41 AM

In the long run, few people will regard the Paulson cheerleading as one of the more egregious bungles by the federal government connected to this collapse.

Paulson deserves much blame, and so does President Bush for having him anywhere near his administration. In 2000 Hank Paulson, then the head of Goldman Sachs, asked the SEC to lift lift broker/dealer leverage limits and was told “no.” At that time the SEC said that removing those limits was unsafe. In 2004 Paulson (two years before he came to Treasury) came back with the request a second time, and the request was granted in what was the culmination of a furious lobbying crusade by Wall Street firms.

All of the other issues (the CRA for example) are important – but none of them were the direct cause of the housing bubble. As long as sane leverage limits are in place coupled with a requirement that borrowers be reasonably able to pay, a bubble of the magnitude of the housing bubble could never have happened. This is math, not politics.

flyfisher on October 5, 2009 at 11:45 AM

I learned a long time ago that when the government said something was good for the taxpayers that the taxpayers should grab their wallets and regard the government with extreme suspicion.

The government does what it believes to be good for the government. The taxpayers had better look out for themselves, because no one else will. Certainly not the guys in Washington.

hachiban on October 5, 2009 at 11:46 AM

Shocker. Michelle called out Paulson long before anyone.

vcferlita on October 5, 2009 at 11:01 AM

Michelle who? Obama or Malkin?

Steve Z on October 5, 2009 at 11:47 AM

Shocker. Michelle called out Paulson long before anyone.

vcferlita on October 5, 2009 at 11:01 AM

Michelle is amongst the vanguard when it comes to calling out liars, crooks, and thieves.

Gang-of-One on October 5, 2009 at 11:49 AM

This is all a continuing coverup on behalf of Citigroup. Not even Barofsky will tell the truth about which of the nine banks were healthy, which leads the reader to assume that none of them were. I believe that is false. Go down that list of nine and you will find only one bank that was, and still is, insolvent – Citigroup.

rockmom on October 5, 2009 at 11:49 AM

Second, aren’t most of these organizations set up into to separate entities so that a failure in one area, i.e. sub-prime mortgage loans, doesn’t collapse the whole institution?

Cindy Munford on October 5, 2009 at 11:11 AM

If I may respond to your question, the sub-prime loan mortgages were repackaged into mortgage-backed securities, the famous “collateralized debt obligations.” These sliced and diced “investments” were actually derivatives which got a market value, at least partially, from the value of the underlying assets which were Mortgage Receivables held by the lending banks.

When it became obvious to the investment community that these CDO derivatives were just a way to share risk on very risky loans and that there was no simple, effective way to value the CDO derivatives in the financial markets, then the billions of dollars (heck, TRILLIONS!) at risk in the mortgage-backed securities (MBS) began to put pressure on risk-insurers, like AIG. Why?

AIG had been selling a financial product which guaranteed against the losses in MBS for a mere 2% premium on face value. For years, AIG collected premiums and made no provision for loss so when the counter-parties, that is those who bought the insurance, began to demand payment, AIG had no way to pay. AIG would be going down for bankruptcy and investment and retail banks would be going down for losses in market value of investments which would reduce comprehensive income.

The culpability of Congress and the the Financial Services Committee has been well documented in that they refused the Bush administration requests for more regulation of financial products like MBS and credit-default swaps, the insurance product that AIG was offering that I mentioned earlier.

It’s a long anser, I know, but it is a twisted and complex plot.

ExpressoBold on October 5, 2009 at 11:50 AM

Foxy McChickencoop is on the job!

(The government only lies when the people can’t handle the truth.)

Obama will keep unemployment under 8.5%!

Afghanistan is to real war!

No one making under $250,000 will see a tax increase!

Health Care Reform will be paid for by cutting waste on other programs!

The Sayings of Chairman Oliar.

profitsbeard on October 5, 2009 at 11:50 AM

anser = answer

ExpressoBold on October 5, 2009 at 11:51 AM

It’s still not clear if all or some of them weren’t healthy.

Bank of America and Citigroup had visible problem later, so it was pretty obvious that they probably were in trouble then.

It could be argued that with the cash infusions that these bank were possibly healthy, but considering that virtually no “toxic assets” have been removed from the system, any institution holding Mortgage Backed Securities (MBS) is still potentially in trouble.
Only those MBS-s of the publicly “failed” institutions have been sold off, but that doesn’t really take them out of the system .. they merely changed holders and their level of risk.

The elephant in the room, that the Congressional commission should deal with is that these MBS-s, which came into being through the CRA (Community Redevelopment Act), guaranteed that eventually the system would suffer a failure, even with good regulation. The underlying problem was trying to put people, who couldn’t pay for a house, into a house. No amount of regulation was going to make that work.

J_Crater on October 5, 2009 at 11:52 AM

I think they take an oath before testifying… let the prosecutions begin.

CC

CapedConservative on October 5, 2009 at 10:57 AM

Denninger at the market ticker has been demanding prosecutions for months now, so don’t hold your breath.

DFCtomm on October 5, 2009 at 12:01 PM

flyfisher on October 5, 2009 at 11:45 AM
All of the other issues (the CRA for example) are important – but none of them were the direct cause of the housing bubble.

I disagree. Congress had a interest in 2006 and 2007, if not even further back, to keep the “bubble” from bursting by further inflating the “bubble”. The instrument of mass destruction would not have been available (or even considered) if not for the CRA.

J_Crater on October 5, 2009 at 12:02 PM

Congress pushed banks under the CRA under the implied threat from their “discrimination” against possible loan applicants. Even when the market was going insane, Congress pushed and pushed for more and more. Meanwhile, Fannie Mae and Freddie Mac had turned into a “piggybank” for political cronies who really knew nothing about banking. They were happy to comply.

The underlying problem was trying to put people, who couldn’t pay for a house, into a house. No amount of regulation was going to make that work.

J_Crater on October 5, 2009 at 12:08 PM

The code words were “Bank of Opportunity” and the illegals jumped on it…I grew very suspicious when my mother’s illegal alien cleaning lady was able ot get a home loan…

CCRWM on October 5, 2009 at 11:35 AM

Did you see the video from a few months ago of the illegal bus driver and her husband, I forget his profession, who had a 500k mortgage they couldn’t service and were going to lose their home? The big mistake of the piece was conducting part of the interview from her home. Her home made my modest house look like a dump. It had granite counter tops and stainless steel appliances. It’s hard to drum up sympathy for the terminally stupid.

DFCtomm on October 5, 2009 at 12:10 PM

Lets also not forget the Greenspan put, artifical low interest rates, the bail out of LTCM ( setting the moral hazard stage for wall street) and the striping of Glass-Steagall.

Paulson should be in Gitmo along with some of these bankers that basically stole billions from us via AIG CDS.

The banks should have failed. That is capitalism, unfortunately we have to backstop there leverage and speculation.

The sad thing is after a year nothing has changed. I get no return on my savings, banks are not lending because they can’t, and they still have “toxic” loans on there balance sheets because of Bawny Frank’s pressure on FASB to allow Mark to Unicorns.

Octavia on October 5, 2009 at 12:10 PM

I disagree. Congress had a interest in 2006 and 2007, if not even further back, to keep the “bubble” from bursting by further inflating the “bubble”. The instrument of mass destruction would not have been available (or even considered) if not for the CRA.

J_Crater on October 5, 2009 at 12:02 PM

You don’t realize that there just weren’t enough mortgages in the U.S. to satisfy the demand for these financial products, and with the loosening of regulations they would have eventually written all the loans produced by the CRA anyway. It was a twofer. The dems and Bush got to push the housing dream for minorities, and the Republicans got to give the banking/investment industry huge profits. It was a perfect storm of stupid politics.

DFCtomm on October 5, 2009 at 12:15 PM

It is apparent that a giant tsunami of biblical proportions will overcome the banking industry soon. Once investors start to understand the sheer magnitude of what really has happened, how they were scammed, that they will never get their money back, and pull out of them then these lending intuitions will collapse and cease to exist as they should have back in Oct. of 08’. Each of those nine “banks” are nine Enron’s but magnified by a factor of 100 or more. We can’t continue to prop these “banks” up anymore. The longer they stay in business the worse shape our country is going to be in. Putting more money into these banks is digging the hole deeper and deeper. As painful as it may be for our economy, for it to pick itself back up, we NEED these banks to go away NOW and never be allowed to return. If we do not let them wither and die, they will continue to suck us dry like a leach that just gets bigger and bigger….

0321_GUY on October 5, 2009 at 12:21 PM

Hey J. Crater,

You might want to read this: Why Ponzi Finance Fails

From the article:

INSTEAD OF HITTING THE WALL THAT LEGISLATION HAD PUT IN PLACE TO PREVENT OUT-OF-CONTROL PONZI FINANCE THESE CONNIVING FINANCIERS WENT TO OUR LAWMAKERS AND DEMANDED THAT THEY MOVE THE WALL OUT OF THE WAY SO THEY COULD RUN THEIR RAW PONZI SCHEME THROUGH A FEW MORE ITERATIONS!

(all CAPs in the article as well)

If they don’t raise those leverage limits, we don’t blow that bubble. The investment houses went from reasonable leverage limit of 12-1 to, in the case of Merrill Lynch, 40-1. The net-capital rule had been in place since 1975 and it was protected the entire market.

When you erase responsible leverage limits, after having repealed Glass-Stegall and enacted the CRA, the outcome was entirely predictable.

flyfisher on October 5, 2009 at 12:36 PM

0321_GUY on October 5, 2009 at 12:21 PM

Amen. And it’s not just those nine banks. The regionals are mostly on life support as well.

flyfisher on October 5, 2009 at 12:37 PM

When you erase responsible leverage limits, after having repealed Glass-Stegall and enacted the CRA, the outcome was entirely predictable.

flyfisher on October 5, 2009 at 12:36 PM

Looks like I’m not the only member of the Denninger choir here.

DFCtomm on October 5, 2009 at 12:40 PM

The major problems are:
1. living beyond our means-federally backed $$
2. taxes & regulations causing inflated costs over everything
3. govt is too big
#1 is easy to fix-do it at the personal level.
#2 term limits might be a good place to start-get rid of regulatory agencies that impose regulations that have no accountable elected officials (I know I’m dreaming here)
#3. It’s gonna hurt: cut all social programs. Let non-profits do what they’ve been doing. This would be the hardest bcs so many sucking on govt’s teat whine til they get what they want. Old idea: voting requirements besides citizenship?

Badger40 on October 5, 2009 at 12:46 PM

Looks like I’m not the only member of the Denninger choir here.

DFCtomm on October 5, 2009 at 12:40 PM

Nope. I’ve been reading Denninger for about two years now. I’m a real conservative, but I’m troubled that more on our side don’t want to look beyond the CRA. The CRA was typical liberal folly, but there is much much more to our economic woes. Going back to the 90’s, I protested the repeal of Glass-Stegall. And I’ve been screaming about public debt forever. I’ve never believed debt doesn’t matter. It has to be repaid…with interest!

flyfisher on October 5, 2009 at 12:47 PM

#3. It’s gonna hurt: cut all social programs. Let non-profits do what they’ve been doing. This would be the hardest bcs so many sucking on govt’s teat whine til they get what they want. Old idea: voting requirements besides citizenship?

Badger40 on October 5, 2009 at 12:46 PM

I liked they way it was done in “Starship Troopers”. Tie voting to military service. If you’re not willing to risk your life, then you don’t get a vote, but that is even more fantasy than the movie was.

DFCtomm on October 5, 2009 at 12:49 PM

The sad thing is after a year nothing has changed. I get no return on my savings, banks are not lending because they can’t, and they still have “toxic” loans on there balance sheets because of Bawny Frank’s pressure on FASB to allow Mark to Unicorns.

Octavia on October 5, 2009 at 12:10 PM

Exactly!

M-T-M (Mark-to-MakeBelieve) has begun to enrich the banks since the second quarter, after the Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises led by Paul E. Kanjorski (D-PA) practically ordered the FASB to do away with Mark-to Market FV accounting in the first quarter and to stop “looking at a computer screen and do some calculating.”

Anybody who saw these hearings had to be embarrassed for the accounting profession in re capitulation to political connivers on the sub-committee.

ExpressoBold on October 5, 2009 at 12:55 PM

The White House and Congress want to expand a 30-year-old law–the Community Reinvestment Act–that helped to fuel the mortgage meltdown.

According to the National Community Reinvestment Coalition, in the first 20 years of the act, up to 1997, commitments totaled approximately $200 billion. But from 1997 to 2007, commitments exploded to more than $4.2 trillion.

J_Crater on October 5, 2009 at 12:59 PM

Not only have they lied, they (the FED, Feds, CNBC, Wall Street stock pimps, etc) continue to lie. For those who haven’t figured it out: this market rally is FAKE. I believe the manipulation began about the time Obongo told everyone it was a good time to buy stocks.

flyfisher on October 5, 2009 at 11:19 AM

I, too, read Denninger. He is correct. But the government is doing i’ts damndest to not make the banks recognize their insolvency.

My opinion, is no mony should have been spent on TARP. If any taxpayer funds at all are to be used, it should all go to the FDIC to bail out depositors. As the LAW REQUIRES. FOLLOW EXISTING LAW; SHUT THEM DOWN IN AN ODERLY MANNER.

But even with the FDIC, the laws are not being followed. The taxpayer is being hung out to dry to shield stockholders and bondholders from losses. And the cry for “more regulation” of the banking industry continues. Probably needed with CDS’s and MBS’s, but we can’t even follow existing law. Don’t see how passing more laws we won’t enforce helps. The current owners of insolvent banks should not be propped up with taxpayer monies. Also, if the Fed was not in charge of interest rates, we might actually be able to get a return on our money from the banks. But they have become spoiled. Why borrow from me at 5% when they can go to the Fed for 0%? By not allowing a good float to the interest rate for oh so many years, the Fed has made saving anethema, and has left little opportunity for savers to make a resonable rate of return for the use of their funds.

Hey flyfisher, if you are from out west, what are the chances on getting a few acres with a spring creek for a reasonable price?

riverrat10k on October 5, 2009 at 1:06 PM

J_Crater on October 5, 2009 at 12:59 PM

You’re confusing a symptom for the disease. I don’t think anybody here is saying that the CRA was good, but if investment banking hadn’t been let off the leash then the CRA problems couldn’t have happened. If the CRA hadn’t existed the banks would have eventually started writing the same kind of risky loans the CRA demanded just to supply the demand for those highly rated low risk products that have destroyed our economy.

DFCtomm on October 5, 2009 at 1:06 PM

J_Crater on October 5, 2009 at 12:59 PM

Yep, that’s a huge mistake. The CRA was always foolish; expanding it is suidical. I don’t know any rational person who supports the CRA. President Bush’s “Ownership Society” was based on a flood of cheap credit and bad liberal policy. My point above was that if we had retained 12-1 leverage limits, we could have kept a lid on the damage. That’s what leverage limits are designed to do.

flyfisher on October 5, 2009 at 1:07 PM

Hey flyfisher, if you are from out west, what are the chances on getting a few acres with a spring creek for a reasonable price?

riverrat10k on October 5, 2009 at 1:06 PM

I’m from Tennessee. And I couldn’t agree more–we must follow the law.

flyfisher on October 5, 2009 at 1:09 PM

With regard to leverage, of course you are correct. High margin leverage is what wiped so many people out in the 1929 stock market crash.

We have allowed the banks to do the same thing now, with, without taxpayer money, the same result.

Absolutely criminal and shaemeful. A number of bankers, politicians, and federal regulators need to be in jail for a long time. Most of my letters to my elected corruptocrats stress this meme.

riverrat10k on October 5, 2009 at 1:10 PM

Poorly constructed second sentence, LOL. Oh well, more fisherman than writer myself.:)

riverrat10k on October 5, 2009 at 1:13 PM

If the CRA hadn’t existed the banks would have eventually started writing the same kind of risky loans the CRA demanded just to supply the demand for those highly rated low risk products that have destroyed our economy.

Prove it. The CRA provided the vehicle and the political cover.

J_Crater on October 5, 2009 at 1:15 PM

Nine banks got billions of dollars from the TARP funds, ostensibly to help shore up confidence in the American financial sector, while Henry Paulson declared them “healthy.” Instead, Barofsky now says at least some of those nine institutions were in serious trouble when they got the cash infusions:

Paulson lied???

Get the f outta here!

thirteen28 on October 5, 2009 at 1:16 PM

Poorly constructed second sentence, LOL. Oh well, more fisherman than writer myself.:)

riverrat10k on October 5, 2009 at 1:13 PM

I write. I fish. I often write about fishing.

flyfisher on October 5, 2009 at 1:18 PM

Prove it. The CRA provided the vehicle and the political cover.

J_Crater on October 5, 2009 at 1:15 PM

I don’t recall them ever using minority housing as a cover for deregulation. There was talking about the regulations being outdated and that our system was inherently safe and didn’t require those old stogy regulations. No political cover needed, and of course the financial system was all too happy to provide the vehicle that we rode off a cliff.

DFCtomm on October 5, 2009 at 1:26 PM

Poorly constructed second sentence, LOL. Oh well, more fisherman than writer myself.:)

riverrat10k on October 5, 2009 at 1:13 PM
I write. I fish. I often write about fishing.

flyfisher on October 5, 2009 at 1:18 PM

To your earlier post, I have heard there is still tolerably cheap property on the hills overlooking, say Norris Lake. Not the lakefront properties. Unfortunately, the wife said Tenn. is too far from the coast. Hmmmm. Old house or new wife?

Of course probably won’t be able to afford either unless the fraudsters are jailed, and soon.

riverrat10k on October 5, 2009 at 1:35 PM

If the CRA hadn’t existed the banks would have eventually started writing the same kind of risky loans the CRA demanded just to supply the demand for those highly rated low risk products that have destroyed our economy.

Prove it. The CRA provided the vehicle and the political cover.

J_Crater on October 5, 2009 at 1:15 PM

Can you prove how the housing bubble would have been possible had we left sane leverage limits in place?

When you erase reasonable restrictions on leverage, erase boundaries (repeal of Glass-Stegall), and flood the market with trillions in cheap credit, you don’t need a CRA to produce a disaster. A disaster was guaranteed.

flyfisher on October 5, 2009 at 1:36 PM

What, Turbo-Tax Timmy was lying?

mojo on October 5, 2009 at 1:42 PM

What, Turbo-Tax Timmy was lying?

mojo on October 5, 2009 at 1:42 PM

And Paulson. And Bernanke. And…etc. etc.

riverrat10k on October 5, 2009 at 1:44 PM

To your earlier post, I have heard there is still tolerably cheap property on the hills overlooking, say Norris Lake. Not the lakefront properties. Unfortunately, the wife said Tenn. is too far from the coast. Hmmmm. Old house or new wife?

Of course probably won’t be able to afford either unless the fraudsters are jailed, and soon.

riverrat10k on October 5, 2009 at 1:35 PM

Give me an easy one. The Tennessee hills are God’s country my friend. New wife!

FYI…My brother-in-law is a permanent bachelor who lives in an incredible cabin on fifty secluded acres near Lake Norris. He works hard for about three months of the year. The rest of the time he hunts, fishes, golfs and drinks a lot of beer.

flyfisher on October 5, 2009 at 1:46 PM

My kinda guy, flyfisher. Best of luck to you and those you care for in these trying times. Tight lines.

riverrat10k on October 5, 2009 at 1:49 PM

ok, help me to understand this, but my strength lies in the creative field, not financial. it is my understanding of black friday when the banks collapsed, that there was a run on taking out money that led to the collapse. naturally a bank doesn’t have as much cash in assets as what they have in investors. in other words, banks don’t have as much cash as what people drop into them. if enough people take out money, that can cause a bank to go belly up, right?

wasn’t one of the problems of the great depression the appearance of going out of business that led people to keep taking out money, or selling stock? couldn’t that be said for the decision to pump hundreds of billions of dollars into “healthy” banks? the mere appearance of trouble could cause a run on withdrawls and selling of assets, thus making the problem a wee bit worse. AIG? can’t say i blame bush or o’bama. anyone care to prove me wrong? would like to know more about this.

photoboy74 on October 5, 2009 at 2:32 PM

photoboy74 on October 5, 2009 at 2:32 PM

This is a good article to start you off.

DFCtomm on October 5, 2009 at 2:43 PM

Hey !!!

I know what let’s do !!!

Let’s run around, like Henny-Penny, telling Bozo John Q. Public the banks are in trouble. !!!

What could possibly go wrong?

franksalterego on October 5, 2009 at 3:18 PM

There will be no place to hide, except for owing gold.
PatriotRider on October 5, 2009 at 11:25 AM

Every time it really hits the fan, Uncle Sam bans private ownership of gold. Look it up.

I remember when this country planned on surviving a nuclear exchange with the USSR. Funny, maybe because I was a kid, but nobody seem worried about how we’d guarantee the Forbes 400 kept their doors open. Funny, since that’s apparently more important than the dollar itself!

Chris_Balsz on October 5, 2009 at 3:33 PM

I am not so sure I take this at face value. I think that maybe it would be wise to wait and see what Paulson and Bernanke says. To say they lied seems a stretch..I think there was some real panic back then and the Feds felt they had to put money into the system to avoid a collapse. This is not just Paulson after all, it is the Fed Chief as well.

It seems all to often people come out with these kind of reports on different issues, and then other information comes out later that brings those reports into doubt. Such as the NIE report.

I read the other day that the Tarp money is being repaid, at a 5% profit.

Terrye on October 5, 2009 at 3:35 PM

I usually avoid anything from CNN like the plague, but I thought this was interesting, it is in their money section:

WASHINGTON (CNNMoney.com) — A government watchdog says federal officials weren’t entirely honest with the public about the health of the first 9 financial firms that got federal bailouts, according to a report released Monday.

Bailout special inspector general Neil Barofsky says in an audit that Treasury Department officials painted an overly rosy picture, creating “unrealistic expectations,” when they called the first bailout banks “healthy” institutions that would be able to lend more with government help.

“It is not our intent to suggest that government officials should make public their concerns over the financial health of individual institutions, but rather that government officials should be particularly careful, even in a time of crisis, of describing their actions (and the rationales for such actions) in an accurate manner,” the report stated.

Treasury appeared to disagree with the assessment of the Special Inspector General of the Troubled Asset Relief Program (SigTARP), saying “people may differ” on the phrasing of the original bailout announcements.

“Any review of the announcements must be considered in light of the unprecedented circumstances in which they were made,” wrote TARP chief Herb Allison in response to the SigTARP report.

Separately, the new audit looks into charges that federal officials strong-armed Bank of America (BAC, Fortune 500) into completing its planned purchase of Merrill Lynch, even as BofA worried about mounting losses at Merrill in late 2008. Further, the report looks into whether officials pressured BofA to conceal those losses from its shareholders.

Barofsky gives the major players the benefit of the doubt. He acknowledges that Federal Reserve chairman Ben Bernanke and then-Treasury Secretary Hank Paulson wanted the deal to go through, fearing the potential failure of Merrill Lynch and the “collateral damage to the economy.”

But Barofsky “found nothing to indicate Treasury and Federal Reserve officials instructed Bank of America executives to withhold the public disclosure of losses.”

Terrye on October 5, 2009 at 3:47 PM

I write. I fish. I often write about fishing.

flyfisher on October 5, 2009 at 1:18 PM

You should try the elk river C&R sometime. Some of the best fly fishing in the east.

0321_GUY on October 5, 2009 at 4:21 PM

It’s news because BUSH WAS PRESIDENT then!!!

Ah, those magic words, “last year”.

Obviously, these Bush lies are the reason the stimulus hasn’t been sufficient to rekindle employment.

All hail the “Save-or-creator”.

Anil Petra on October 5, 2009 at 4:30 PM

You should try the elk river C&R sometime. Some of the best fly fishing in the east.

0321_GUY on October 5, 2009 at 4:21 PM

Thanks. I’ve read about it, but never fished it. Have you fished the Blackwater? I’m supposed to go to the Blackwater with a cousin in a couple of weeks. How does it compare to the Elk C&R?

flyfisher on October 5, 2009 at 4:42 PM

The water was down at Elk Creek when I was there 2 weeks ago but the day we left they got some good rain for a few days so the water is up. The Blackwater is good fishing. They were hitting the san juan worms like crazy, size 16 or 18. The water was like gin so I had to use a 9x tipit. Great fishing though.

0321_GUY on October 5, 2009 at 7:11 PM

Oh, they compare about the same. With the water up a bit I think you guys will do well on the Blackwater.

0321_GUY on October 5, 2009 at 7:13 PM

http://www.veteranoutrage.com

Link to the original article

[From the article]
In the most profound financial change in recent Middle East historyGulf Arabs are planning – along with China, Russia, Japan and Franceto end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, goldand a new, unified currency planned for nations in theGulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministersand central bank governors in Russia, China, Japan and Brazilto work on the schemewhich will mean that oil will no longer be priced in dollars.

[My comments]
Obama and the democrats got us into this un-enviable position.
They did so by ignoring common sense about debt and inflation
and instead financed their insane deficit spending by
printing trillions of us dollars thereby
Destroying the dollars value..

Now these other countries are taking advantage of the situation so their Currency will REPLACE the Dollar.

Its so bad that the chinese yuan and the russian ruble soon
will be the worlds currency of choice after the democrats have finished destroying the dollar.

Hey you morons voted for the god damned democrats
I hope your retirement check is in rubles..

But it gets even better for
just you wait until oil PRICED in RUBLES or the Yuan
suddendly climbs to 250 dollars a barrel..
because the dollar is now worthless thanks to you liberals

How will you pay for your gas then you liberal morons.
When gas is 20 dollars a gallon ?

you liberal morons..

veteranoutrage on October 5, 2009 at 10:51 PM