Friday, June 14, 2013

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.....

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