Bailout:Some More Details About TARP(Barofsky)

John Hope III,chairman of Whitney National Bank in New Orleans, received $$300 million in TARP funds was quoted as saying "make more loans?We're not going to change our business model or our credit policies to accommodate the needs of the public sector". That statement summarizes the banks response to the mortgage relief problem effecting millions of American citizens during the  economic crises that began in 2008.It was a windfall ,no strings attached, that the banks used to pay down debt,acquire other businesses or invest for the future.They were self centered as usual to keep their stockholders happy with high levels of return and the hell with the public who put up the money in good faith.Larry Summers,the new director of President Obama's National Economic Council,had indicated that Treasury would impose new conditions on TARP recipients.Before the release of the second $350 billion in TARP money,Summers had said that it would require healthy banks to increase lending above baseline levels and preclude the purchase of other firms. Kashkari,assistant secretary of the Treasury and TARP Czar, dismissed Summer's point saying that the new conditions are purely political and Barofsky stated that he was correct and never saw the light of day. HAMP(Home Affordable Modification Plan) was announced by Geithner(New Treasury Secretary) and followed by President Obama that promised to help 3 to 4 million homeowners modify the terms of their mortgages to avoid foreclosure. The program would pay incentives to home owners,investors and servicers at a total cost of $75 billion($50 billion from TARP and $25 Billion from Fannie and Freddie).Geithner was more interested,according to Barofsky, in helping the banks than the home owners because he stated that the program would help foam the runway for them.This meant that Geithner looked at HAMP as an aid to the banks,keeping the full flush of foreclosures from hitting the financial system all at the same time.It gave the banks more time to absorb losses while the other parts of the bailouts juiced banks profits that could then fill the capital holes created by housing losses.So the homeowners got screwed again because the administration(banks)wanted to stretch this program out until profits returned. HAMP was an essential part of the bank bailouts.It didn't matter if modification failed after a year or two of trial payments or if struggling borrowers placed into doomed trial modifications ended up worse off,as long as the banks were able to stretch out their pain .As of 2012,only 500,000 modification plans have been operational out of 3 to 4 million homeowners.

Bailout :Barofsky And The Oversight of TARP

This book was written by Neil Barofsky who was the former Special Inspector General in charge of the oversight of TARP(Troubled Asset Relief Program).His office SIGTARP was created by Congress to enforce the laws and regulations contained in the $700 billion bank bailout in 2008. His office received $50 million as a law enforcement agency.The initial TARP proposal,made by Paulson(Goldman Sacks), was for money to buy large quantities of the toxic mortgages and mortgage-related bonds that were clogging banks' balance sheets.The decline in the value of those assets was what precipitated the crisis of 2008 and Paulson's argument was that the banks could not be stabilized until large quantities of them were taken off their books.The move,approved by Congress, would hopefully prevent the banks from failing and the Treasury would be in control of many of the troubled mortgage loans to give those households foreclosure relief through modification.This would also stabilize the housing market.The bill included broad oversight provisions and a virtually unlimited expansion of the definition of troubled assets that Treasury could purchase. Paulson took full advantaged of that discretion when he decided to switch to CPP(Capital Purchase Program) and use TARP funds to inject capital directly into banks by buying preferred shares of stock from them.$250 billion was used for this discretionary move that had nothing to do with helping individuals with their foreclosure problems.Under CPP, none of the toxic assets would be taken off the banks' books and no mortgages would be purchased or modified. The CPP,according to Paulson, would stimulate lending and get credit flowing. In truth,according to Barofsky, there was no real focus in CPP on either increasing lending or helping owners avoid foreclosure.The Treasury didn't have any conditions related to lending in the CPP contracts or having the banks account for how they were using TARP funds.

The Treasury showered Wall Street with $250 billion to CPP,$40 million to AIG, $20 billion to TALF(Term Asset Backed Securities Loan Facility),another $20 to Citigroup and $300 billion with the Federal Reserve/FDIC to provide banks with a guarantee on toxic loans.The banks were using the money to buy securities,other banks,saving it..anything but lending it to help the economy.The Treasury's goal was to get as much TARP money out as quickly as possible to qualified banks and they(Kashkari.(TARP Czar...Goldman Sacks)(Hoyt..General Counsel..assistant to Bush) seemed completely unconcerned with what the banks did with the money,according to Barofsky. Kashkari refused to acknowledge the set of methods for reporting Barofsky recommended.The goal of the CPP of lending to create economic expansion was more of a public relations move than a real executable policy. Barofsky was stonewalled with his oversight requests at every turn.

Through TALF,Treasury and the Fed were proposing to put a huge new stake of taxpayer money into the purchase of bonds created by the very same securitization process backed by by a range of consumer loans.They wanted to also rely on credit rating agencies and investor due diligence to prevent a meltdown like the housing crises of 2007-8. Barofsky couldn't believe that the the Treasury(Paulson,Dudley,Kashkari,Miller...Goldman Sacks alumni) and chief investment officer,James Lambright(Credit Suisse) would run down this road again and believe in their former employers and other Wall St. institutions.

More to come.....

Richard Wolff - Democracy at Work: A Cure for Capitalism

Richard Wolff - Democracy at Work: A Cure for Capitalism