Showing posts tagged TARP

The politics of Matt Tabbi’s big con

Aside from racism, the most important source of political power for the far right in the United States is apathy and despair. The same political forces that murdered people for registering to vote in Mississippi just a few decades back and that are still desperately working on voter suppression tactics today also work hard to convince “the wrong kind of voters” that there is no purpose in voting, it’s all a fraud, voting doesn’t change anything - only suckers turn out to vote, both parties are the same crooks. That’s the message that people like Matt Taibbi, knowingly or not, sell to the public often with grossly deceptive arguments. In his latest article, Taibbi makes the argument that the Democrats followed the same “financial bailout” policies as Republicans of rewarding the connected Wall Street banks and neglecting Main Street.  Since the facts don’t support this argument, he displays an awesome set of rhetorical tricks. Consider how he misrepresents the Democrats Small Business Lending Fund:

Moreover, instead of using the bailout money as promised – to jump-start the economy – Wall Street used the funds to make the economy more dangerous. […]

Other banks found more creative uses for bailout money. In October 2010, Obama signed a new bailout bill creating a program called the Small Business Lending Fund, in which firms with fewer than $10 billion in assets could apply to share in a pool of $4 billion in public money. As it turned out, however, about a third of the 332 companies that took part in the program used at least some of the money to repay their original TARP loans. Small banks that still owed TARP money essentially took out cheaper loans from the government to repay their more expensive TARP loans – a move that conveniently exempted them from the limits on executive bonuses mandated by the bailout.

The Small Business Lending fund was part of a jobs act sponsored by Barney Frank and a number of the most progressive Democrats in Congress to  provide low cost loans to small banks and community investment funds for the purpose of making loans to small business. For example, one of the recipients of SBLF funds is the Federation of Appalachian Housing Enterprises which has doubled its small business lending since getting money from the SBLF.  Here’s an interesting note from them on green housing for poor people. Another recipient was the Chicago based IFF which builds low income housing. The micro-finance Opportunity Fund of Northern California also got some SBLF money.

And a substantial majority of SBLF participants — more than 60 percent— have now increased their small business lending by 10 percent or more. In dollars, community bank participants increased their small business lending by $3.4 billion and CDLFs increased their small business lending by $86.8 million. [Treasury

It’s certainly possible that some of the small banks that got this money used it for executive bonuses or worse - just like people sometimes cheat on Federal programs for disaster recovery or to feed the poor.  And, of course, the right always argue that we should punish poor people or victims of hurricanes because someone has cheated. But consider how Taibbi has presented this program as a hoax and a fraud and how he has placed it in a context so that he can give the impression it was used to bail out Wall Street. The Taibbi method is to take a kernel of truth and then use it to sell his main proposition: Democrats suck, there is no point in voting, they are all crooks.

Using small-business funds to pay down their own debts, parking huge amounts of cash at the Fed in the midst of a stalled economy – it’s all just evidence of what most Americans know instinctively: that the bailouts didn’t result in much new business lending.

The truth is that much of the bailout money was misdirected - especially the first tranche of $350 billion that Hank Paulson and GW Bush handed out to their friends on Wall Street. But there was a stark difference when the Democrats came into office in 2009 and that difference has been very important in the lives of millions of people.  The most glaring example of that is the use of bailout money by Treasury Secretary Geithner to rescue the auto companies and save millions of jobs. Taibbi’s article never mentions this - the biggest use of TARP funds by the Obama administration is not mentioned even once. The resolution mechanism of the Dodd-Frank financial reform bill is also left unmentioned by Taibbi.  This bill allows the government “resolve” failures in huge non-bank financial companies like AIG or CitiGroup (which owns Citibank and other non-bank businesses) the way the FDIC resolves failing banks. That is, the government can step in and wind the business down in an orderly manner, making shareholders and bondholders bear the cost of business failure. The government now, thanks to the Democrats, can even “claw back” five years worth of salary and bonus from the executives of such companies. This legal method was not available in 2007/2008. Taibbi’s readers will not learn about this because - well because Democrats suck and are the same as Republicans, you know.

Hey, the Democrats suck, all politicians are the same, there is no point in voting - let’s let the mobilized far right, the evangelical right, the Tea Party dominate electoral politics because it doesn’t make any difference! That’s the message that makes David Koch happy.

We should be arguing for expansion of programs like the SBLF and for more public funding to direct investment away from Wall Street’s casino economy. We should be trying to win the House back for Democrats so that people like Darryl Issa and John Boehner are not able to protect their Wall Street sponsors from market forces. We should be pushing for expansion of co-op business, for fairer taxes that don’t penalize work, for a democratized economy that is closer to Thomas Jefferson’s ideal than to the Tea Party theory that working people should grovel to the rich. But we can’t do any of that if we allow people like Taibbi to succeed in their campaign of witless and deceptive indignation.

Originally Posted on 7 January, 2013
Minor edits Feb 2014

Matt Taibbi’s big con

Matt Taibbi is so good at whipping up indignation about the evil bankers that it’s easy to overlook the crackpot and diversionary nature of the story he is telling. It would be useful if there was public pressure, for example, to provide a postal bank that would give people an alternative to commercial banks or if the government made low cost loans available to businesses or municipalities (instead of just to banks) so that Wall Street’s casino investment mentality could not cripple the economy. Tax policy that rewarded long term investment and penalized gambling with other people’s money would also be useful. But Taibbi and others have displaced discussions of such options with confused and misdirected anger. For example, once he has developed the narrative a bit in his latest, he offers up the following absurd line:

Republican senators David Vitter of Louisiana and James Inhofe of Oklahoma were so mad about the unilateral changes and lack of oversight that they sponsored a bill in January 2009 to cancel the remaining $350 billion of TARP.

David Vitter and James Inhofe, two of the worst, most despicable, most irresponsible Senators in the history of the United States were -  get this -“mad about … lack of oversight" in TARP.  And because of this sudden rush of integrity and public spirit, not because they were unprincipled partisan hacks angry that  Barack Obama was taking office a week later, they tried to shut off the money spigots after Paulson and G. W. Bush had already handed out $300 billion to Wall Street. That’s what Taibbi wants you to believe. On second thought, "crackpot" is too polite.
The Vitter/Inhofe resolution was also sponsored by  Bunning, Sessions, DeMint, Barrasso, Enzi and Brownback- an all star cast of terrible Senators.  And Taibbi pivots from the righteous indignation of Diaper Dave Vitter  to the fulminations of Neil Barofsky, the guy GW Bush appointed as TARP Inspector General and whose complaints Taibbi takes as unquestionable truth.  Mr. Barofsky, it turns out, was also a big fan of GOP politicians.
For instance, like so many actors in the capital, Mr. Barofsky develops backdoor relationships with the offices of friendly Republican lawmakers like Senator Charles E. Grassley of Iowa and Representative Darrell Issa of California, leaking information back and forth to shape news coverage. Then he wonders why Treasury keeps him in the dark? [NYT]
Issa and Grassley - nearly at the same level of moral integrity and public service as Vitter. But here’s something just as important that Taibbi does not say: the failure of that Vitter/Inhofe resolution is what allowed President Obama and Treasury Secretary Geithner to rescue the auto industry with TARP funds. In fact, the auto rescue, by far the biggest use of TARP funds by Obama’s Administration is never  mentioned in Taibbi’s article.  Never mentioned- like it didn’t happen. Of course the Treasury under Tim Geithner did not just rescue the auto industry, it rescued the credit unions, provided billions of dollars of TARP loans to small banks, including labor union owned banks, and retrieved almost all the money Bush and Paulson had given to the big Wall Street banks.  Taibbi makes strenuous efforts to dance around the last part - in fact he implies the opposite.
And lastly, he [Larry Summers] promised that the bailouts would be temporary – with a “plan for exit of government intervention” implemented “as quickly as possible.”

The reassurances worked. Once again, TARP survived in Congress – and once again, the bailouts were greenlighted with the aid of Democrats who fell for the old “it’ll help ordinary people” sales pitch. [..]

But in the end, almost nothing Summers promised actually materialized.

But in fact, with one exception everything Summers promised did materialize - especially the exit. Almost all of the money that Bush and Paulson gave to Wall Street came back to the public under Obama and Geithner. To avoid the problem this fact presents for his story, Taibbi uses a lot of invective:
It has been four long winters since the federal government, in the hulking, shaven-skulled, Alien Nation-esque form of then-Treasury Secretary Hank Paulson, committed $700 billion in taxpayer money to rescue Wall Street from its own chicanery and greed.
Actually, the government never committed more than $450billion, but what’s an additional $250billion when it gets in the way of a good story? Or how’s this on Larry Summers?
The pudgy, stubby­ fingered former World Bank economist, who had been forced out as Harvard president for suggesting that women lack a natural aptitude for math and science, begged legislators to reject Vitter’s bill and leave TARP alone.
My GOODNESS - the man is stubby fingered!  No wonder paragon of virtue, Dave Vitter hated him. When invective doesn’t get the job done, Taibbi tries pure bluff.
The bailout ended up being much bigger than anyone expected, expanded far beyond TARP to include more obscure (and in some cases far larger) programs with names like TALF, TAF, PPIP and TLGP

Ominous - but only if you don’t know anything about these programs. TALF has almost all been paid back with interest - about $800million in loans remain outstanding and are all current (they are being paid on time). All TAF loans were repaid in full with interest.  PPIP has earned billions in profits for the government.   TGLP expired with no public losses. Treasury now estimates that total government costs for TARP will be about $80billion - far less than the Resolution Trust cost to wind up a much smaller Savings and Loan crisis in the 1980s. And most of that projected loss is for the auto bailout and writing down people’s mortgages. For Obama and Geithner to get us to this state from the shambles Bush and Paulson left is truly an amazing accomplishment.
See also: Can-matt-taibbi-really-be-that-naive

NYT and Barofsky smear Democrats - “Progressives” taken in

First published on DailyKos. (and if you never had the privilege of reading Bob Swern’s hysterical sky-is-falling articles in DailyKos you won’t get the paragraph starting with “Now I’ve previously”.)

Neil Barofsky’s absurd self-justifying attack piece in the New York Times is built on an atrociously dishonest sleight of hand in which Democrats are blamed for Republican misdeeds. In paragraph seven we get

Treasury, however, provided the money to banks with no effective policy or effort to compel the extension of credit

and in paragraph eight we get

Meanwhile, the goal of helping struggling homeowners was shelved until February 2009,

That’s a funny date, “February 2009” - that’s the first full month in office of the Obama administration.So the money was handed out to Wall Street banks by Bush and Paulson “with no effective policy”, but Bush and Paulson’s names don’t appear in Barofsky’s article. If you read the article without sufficient background or you wanted to follow the Republican narrative for some reason, you could conclude that Geithner and Obama tossed around all that money. But in early February 2009, nearly $300billion had already been committed from TARP. Here’s a table from Barofsky’s own reportof the situation January 23 2009. What Bush and Paulson left for Obama and Geithner.

CPP $194.2 billion ($1.2 billion additional informally committed)
SSFI (AIG) $40 billion
TIP (Citigroup and Bank of America) $40 billion
AGP (Citigroup and Bank of America) $5 billion ($7.5 billion additional announced for Bank of America)
AIFP (GM, Chrysler, financing arms) $20.8 billion

Very few believed that any of this money would come back and the economy was still in a tailspin with massive layoffs taking place on a daily basis and the end of the world being confidently announced all over the place.

Now I’ve previously documented the curious eagerness to believe Republican spin by so-called “progressives” in a number of diaries such as

but uncritically accepting Luntz’s attempt to blame Obama for Bush’s TARP failure is evidence of a whole new level of dizzying spin and confusion. We reached tipping point for the industry that manufactures supposedly left-wing criticism of the Obama administration out of right wing blather.

A year later Barofsky’s report has a very different table. The numbers in parenthesis are repayments. What we see is $121.9 billion back from the generic Wall Street bailout (CPP), $40B back from TIP (BOA and Citi) , and huge new outlays on saving the auto industry (AIFP) plus a new program that went into the consumer/student/auto loan business.

Cpp total Gross $204.9 29.3% ($121.9) $83.0
ssfi total $69.8 10.0% $— $69.8
tip total $40.0 5.7% ($40.0)
aGp total $5.0 0.7% ($5.0)
talf total $30.0 4.3% $— $30.0
aifp total $80.7 11.6% ($2.5) $78.2 
assp total $3.5 0.5% ($0.1) $3.4
ppip total $30.0 4.3% $— $30.0 
mha total $35.5 5.1% $— $35.5
tarp expenditures subtotal $500.1 71.6%
tarp repayments/reductions in exposure subtotal ($170.2)
tarp outstanding subtotal $330.0

What you won’t see in this report, but can find if you look at the detailed TARP data is that during that year billions of dollars to banks went to small banks, union banks, coops, and development agencies. This is one of the most stunning policy turn arounds in American history. And a year later, we have the following admission

On November 29, 2010, CBO issued an updated TARP cost estimate based on its evaluation as of November 18, 2010. 18 CBO estimated that the ultimate cost of TARP will be $25 billion.