April 2, 2009
Forget what you’ve heard about “oversight” and “transparency”. What is really going on with the bank bailouts is beginning to scare some pretty level-headed people.
On March 31, the Senate Finance Committee held a hearing on the oversight of TARP (the Troubled Asset Relief Program, a/k/a the $700 billion bank bailout initiated last fall by former Treasury Secretary, Hank Paulson). The hearing featured testimony by Elizabeth Warren, chairwoman of the Congressional Oversight Panel; Neil Barofsky, Speical Inspector General for TARP and Gene Dodaro of the General Accounting Office. All three testified that the Treasury Department was not cooperating with their efforts to conduct oversight. In other words: They are being stonewalled. Worse yet, Ms. Warren testified that she could not even get the Treasury Department to explain what the hell is its strategy for TARP. As Chris Adams reported for the McClatchy Newspapers:
Noting that TARP passed Congress six months ago, Warren said that her group has repeatedly called on the Treasury Department to provide a clear strategy for the program – and that “the absence of such a vision hampers effective oversight.”
Although she has asked Treasury to explain its strategy, “Congress and the American public have no clear answer to that question.”
That article also included Warren’s testimony that she experienced similar difficulties in obtaining information about the TALF (Term Asset-Backed Securities Loan Facility):
TARP is one of several programs the government has launched in recent months to help ailing institutions and even bolster healthy banks. Warren singled out one program, known as TALF, for involving “substantial downside risk and high costs for the American taxpayer” while offering big potential rewards for private interests. She said the public information about that program was “contradictory, promoting substantial confusion.”
Matthew Jaffe of ABC News pointed out that Neil Barofsky, Speical Inspector General for TARP, voiced similar concerns during his testimony. Not surprisingly, the prepared testimony of the GAO’s Gene Dodaro revealed that:
We continue to note the difficulty of measuring the effect of TARP’s activities.
* * *
. . . Treasury has yet to develop a means of regularly and routinely communicating its activities to relevant Congressional committees, members, the public and other critical stakeholders.
The Treasury Department’s inability to account for what the banks have been doing with TARP funds is based on the simple fact that it hasn’t even bothered to ask the banks that question. As Steve Aquino reported for Mother Jones:
Neil Barofsky, the Special Inspector General of TARP, testified that the Treasury has yet to require TARP recipients to deliver reports disclosing exactly how they are spending taxpayer money. “[C]omplaints that it was impractical or impossible for banks to detail how they used TARP funds were unfounded,” Barofsky said. “While some banks indicated that they had procedures for monitoring their use of TARP money, others did not but were still able to give information on their use of funds.”
Apparently, Treasury Secretary “Turbo” Tim Geithner has adopted a “Don’t Ask — Don’t Tell” policy on the subject of what banks and other financial institutions do with the TARP money they receive. Steve Aquino’s article emphasized how Elizabeth Warren’s testimony raised suspicions about the relationship between the Treasury and AIG — along with its “counterparties” (such as Goldman Sachs):
Congressional Oversight Panel chair Elizabeth Warren — who made news last month when she reported the Treasury had received securities worth $78 billion less than it paid for through TARP — cast more doubt on the Treasury’s relationship with AIG, saying “the opaque nature of the relationship among AIG, its counterparties, the Treasury, and the Federal Reserve Banks, particuarly the Federal Reserve Bank of New York, has substantially hampered oversight of the TARP program by Congress.”
That quote is particularly damning of Treasury Secretary Tim Geithner, because Warren specifically mentions the New York Fed, which Geithner headed before coming to Washington, and who also organized the first bailout of AIG.
At this point, it is difficult to understand why anyone, especially President Obama, would trust Turbo Tim to solve the “toxic asset” problem, with the scam now known as the Public-Private Investment Program or PPIP (pee-pip). John P. Hussman, PhD, President of Hussman Investment Trust, wrote a superb analysis demonstrating the futility of the PPIP. Here’s his conclusion:
The misguided policy of defending bondholders against losses with public funds has increased uncertainty, crowded out private investment, harmed consumer confidence, and prompted defensive saving against possible adversity. We observe this as a plunge in gross domestic investment that is much broader than just construction and real estate, and a corresponding but misleading “improvement” in the current account deficit as domestic investment plunges.
Aside from a few Nobel economists such as Joseph Stiglitz (who characterized the Treasury policy last week as “robbery of the American people”) and Paul Krugman (who called it “a plan to rearrange the deck chairs and hope that that keeps us from hitting the iceberg”), the recognition that this problem can be addressed without a massive waste of public funds (and that it is both dangerous and wrong to do so) is not even on the radar.
In short, attempting to avoid the need for debt restructuring by wasting trillions in public funds increases the likelihood that the current economic downturn will be prolonged, places a massive claim on our future production in order to transfer our nation’s wealth to the bondholders of mismanaged financial companies, and raises the likelihood that any nascent recovery will be cut short by inflation pressures. We are nowhere near the completion of this deleveraging cycle.
Unfortunately, we are also nowhere near finding someone who has the will or the ability to pull the plug on Turbo Tim’s recipe for disaster.
More Bad Press For Goldman Sachs
July 16, 2009
They can’t seem to get away from it, no matter how hard they try. Goldman Sachs is finding itself confronted with bad publicity on a daily basis.
It all started with Matt Taibbi’s article in Rolling Stone. As I pointed out on June 25, I liked the article as well as Matt’s other work. His blog can be found here. His article on Goldman Sachs employed a good deal of hyperbolic rhetoric which I enjoyed — especially the metaphor of Goldman Sachs as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”. Nevertheless, many commentators took issue with the article, especially focusing on the subtitle’s claim that “Goldman Sachs has engineered every major market manipulation since the Great Depression”. I took that remark as hyperbole, since it would obviously require over 120 megabytes of space to document “every major market manipulation since the Great Depression” — so I wasn’t disappointed about being unable to read all that. Some of Taibbi’s critics include Megan McArdle from The Atlantic and Joe Weisenthal at Clusterstock.
On the other hand, Taibbi did get a show of support from Eliot “Socks” Spitzer during a July 14 interview on Bloomberg TV. Mr. Spitzer made some important points about Goldman’s conduct that we are now hearing from a number of other sources. Spitzer began by emphasizing that because of the bank bailouts “Goldman’s capital was driven to virtually nothing — because we as taxpayers gave them access to capital — they made a bloody fortune” (another vampire squid reference). Spitzer voiced the concern that Goldman is simply going back to proprietary trading and taking advantage of spreads, following its old business model. He argued that, a result of the bailouts:
This sentiment seems to be coming from all directions, in light of the fact that on July 14, Goldman reported second-quarter profits of 3.44 billion dollars — while on the following day, another TARP recipient, CIT Group disclosed that it would likely file for bankruptcy on July 17. On July 16, The Wall Street Journal ran an editorial entitled: “A Tale of Two Bailouts” comparing Goldman’s fate with that of CIT. The article pointed out that since Goldman’s risk is subsidized by the taxpayers, the company might be more appropriately re-branded as “Goldie Mac”:
Robert Reich voiced similar concern over the fact that “Goldman’s high-risk business model hasn’t changed one bit from what it was before the implosion of Wall Street.” He went on to explain:
At The Huffington Post, Mike Lux reminded Goldman that despite its repayment of $10 billion in TARP funds, we haven’t overlooked the fact that Goldman has not repaid the $13 billion it received for being a counterparty to AIG’s bad paper or the “unrevealed billions” it received from the Federal Reserve. This raises a serious question as to whether Goldman should be allowed to pay record bonuses to its employees, as planned. Didn’t we go through this once before? Paul Abrams is mindful of this, having issued a wake-up call to “Turbo” Tim Geithner and Congress.
As long as we keep reading the news, each passing day provides us with yet another reminder to feel outrage over the hubris of the people at Goldman Sachs.