Those were the words of Neil Barofsky (appointed by Bush,
registered Democrat), former special inspector general for TARP, in a recent
interview with Yahoo!
Finance. Here is the video:
And here are some key takeaways:
- Banks could dictate terms of their own bailout
- No difference between the Bush administration and the Obama administration
- Most of blame goes to executive branch, and thus Treasury (again both parties)
- Program was intended to restore lending, help homeowners, but nothing in program to compel the banks to do so
- Geithner essentially acknowledged that the program was to allow banks to soften the blow and extend the foreclosure process
- Government just looked the other way in the face of misconduct
- Accounting tricks and spin have essentially showed TARP is a gain, but losses were still less than expected
- Further, the above “gain” doesn’t take into account all other bailouts
- It did help prevent financial Armageddon, but did little in the way of helping the broader economy and households, which is the reason why Congress passed TARP in the first place
In hindsight without the world on the brink of
returning to a hunter-gatherer society it’s much easier to criticize the
program. It was really scary in the Fall
of 2008. I admit that. Further, I will concede I don’t think
Paulson, Bernanke, Geithner, etc. created this massive wealth transfer out of
malice.
Having said that, I think Barofsky is correct – consumers
are still over leveraged, unemployment is high, consumption is weak, growth is
slow, etc. While all are improving, none
are indicative of a robust economy.
There could have been a better way to handle TARP (e.g. controlled
bankruptcy, greater controls) and if there wasn’t, why wasn’t there?
Ultimately I think TARP is another example of treating the
symptoms and not the disease. The banks
were in trouble because they made excessive loans to consumers who were
leveraged to the gills. The economy
won’t feel any better until the consumers repair their balance sheets. TARP, monetary easing, and other policies
have done little to address that.
HT to Big Picture for
alerting me to the video.
Here is Barofsky’s
book.
