Top TARP inspection aide nukes Geithner and Paulson, alleges that banking sector hijacked monies for its own ends
Writing in the New York Times this morning, retiring TARP (Troubled Assets Relief Programme) head Neil Barofsky told American taxpayers that the bank bailout funds had not been used for the express purposes described in the original agreement between the Federal Reserve and the Banks.
Although the Obama Administration has dubbed the TARP programme “remarkably effective by any objective measure”, its Head Inspector Neil M. Barofsky refuted this view entirely in this morning’s NYT piece.
“Though there is no question that the country benefited by avoiding a meltdown of the financial system,” says Barofsky, “this cannot be the only yardstick by which TARP’s legacy is measured. The act’s emphasis on preserving homeownership was particularly vital to passage. Congress was told that TARP would be used to purchase up to $700 billion of mortgages, and, to obtain the necessary votes, Treasury promised that it would modify those mortgages to assist struggling homeowners. Indeed, the act expressly directed the department to do just that. But it has done little to abide by this legislative bargain. Almost immediately, as permitted by the broad language of the act, Treasury’s plan for TARP shifted from the purchase of mortgages to the infusion of hundreds of billions of dollars into the nation’s largest financial institutions, a shift that came with the express promise that it would restore lending.”
In other words, the homeowner relief monies were hijacked by the banks. He continues: (my italics)
“The country was assured that regulatory reform would address the threat to our financial system posed by large banks that have become effectively guaranteed by the government no matter how reckless their behavior. This promise also appears likely to go unfulfilled. The biggest banks are 20 percent larger than they were before the crisis and control a larger part of our economy than ever. They reasonably assume that the government will rescue them again, if necessary. Indeed, credit rating agencies incorporate future government bailouts into their assessments of the largest banks, exaggerating market distortions that provide them with an unfair advantage over smaller institutions, which continue to struggle.”
Worse, Treasury apparently has chosen to ignore rather than support real efforts at reform, such as those advocated by Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, to simplify or shrink the most complex financial institutions.”
But Barofsky’s concluding condemnation pinpoints with astonishing frankness where the blame lies:
“In the final analysis, it has been Treasury’s broken promises that have turned TARP — which was instrumental in saving the financial system at a relatively modest cost to taxpayers — into a program commonly viewed as little more than a giveaway to Wall Street executives. Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals — whether born of incompetence, timidity in the face of a crisis or a mindset too closely aligned with the banks it was supposed to rein in — may have so damaged the credibility of the government as a whole that future policy makers may be politically unable to take the necessary steps to save the system the next time a crisis arises.”
The potentially dire ramification outlined at the end there – that crying wolf will in the end rebound – is the thing that will be thought most telling among financial commentators. But in reality, the impact among ordinary citizens both in the US and over here in the UK will be to confirm the anger at how a tiny, greedy elite not only created the crisis in the first place; it also diverted the funds it had been given for entirely selfish commercial ends.
It simply will not wash any longer for bank apologists to dismiss the greed charges as ‘bank-bashing’ – or accuse me of having failed O-Level maths. The evidence against investment banking has gone way beyond circumstantial: there people are guilty, and must broken up, rather than bashed.
The Slog has reiterated many times that the Coalition Government woefully underestimates the real anger still nascent among the electorate. When the next stage of trouble hits, those who rolled over in the face of banking misanthropy will be swept away.