Reading this article will make you furious. In a recent article for Rolling Stone , titled "Obama's Big Sellout," Matt Taibbi eviscerates the Obama White House, saying that President Obama has . . . more
What do we do in response to a financial crisis due in no small part to the systemic risk posed by institutions that by their very size prove essential to a functioning financial system? Gorge them on taxpayer funds so they get even bigger, while smaller banks without the benefit of implicit government guarantee are allowed to fail (as all insolvent businesses should):
From TARP Oversight Report via TBP.
Disgraced ex-governor-turned-columnist Eliot Spitzer over at Slate talks about the report issued by Special Inspector General Neil Barofsky concerning why AIG's counterparties were paid 100 cents . . . more
Great video illustrating how much 1 trillion bones, or clams, or whatever you call them, is:
Via The Big Picture.
Looks like Treasury is now entertaining the possibility of letting big investment firms create "bailout bonds" (think war bonds) in mutual funds which would allow the average investor to participate in the PPIP, as I previously mentioned. I think this is a great idea in its own right; whether or not the PPIP will work as Geithner envisions remains to be seen.
But if you want to invest in something you're subsidizing anyway it's worth a look.
"The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous."I agree, Lizzie. But guess what? We already did! What now?
-Elizabeth Warren, Chair of the Congressional Oversight Panel to oversee the TARP
Elizabeth Warren, chief watchdog of America's $700bn (£472bn) bank bailout plan, will this week call for the removal of top executives from Citigroup, AIG and other institutions that have received government funds in a damning report that will question the administration's approach to saving the financial system from collapse.
Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program (Tarp), is also set to call for shareholders in those institutions to be "wiped out". "It is crucial for these things to happen," she said. "Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade." She declined to give more detail but confirmed that she would refer to insurance group AIG, which has received $173bn in bailout money, and banking giant Citigroup, which has had $45bn in funds and more than $316bn of loan guarantees.
It'll be interesting to see how this plays out. Is the Panel then recommending FDIC receivership? How does Warren see the shareholders getting wiped out? All common stock goes to Uncle Sam?
And who has the authority to act or not on the Panel's recs? Treasury? Can Geithner just give Warren the Heisman on this or is the ball in Congress's court now?
Clearly this has been a case of putting the (gold-plated) cart before the proverbial horse.
Check out this interactive chart over at CNNMoney.com. It shows the total amount of money involved in the economic rescue itemized by program:
$2.6 trillion - and that's only a quarter of the total allocated!
Can a brother hold a couple big dimes?
Via Ritholz.
Interesting debate between four economists over at the Times concerning the latest revision of the TARP from Treasury.
From what I understand - and don't quote me on this - Geithner's program provides non-recourse low-cost loans to private investors. Basically the gov't is subsidizing about 93% of the cost of buying up at least $500B in toxic assets. This gives investors essentially zero downside with the taxpayer* FDIC on the hook for major cabbage if the assets turn out to be worthless in actuality, not just artificially depressed (as the Geithner camp is hoping is the case).
The debate ranges from "this plan sucks" (Krugman) to "better than nothing" (DeLong). From what I've read it seems that the plan will help, but the real question is whether it is just delaying an inevitable nationalization.
*Update: My mistake. The taxpayer isn't on the hook because the FDIC (funded by bank fees, not tax dollars) guarantees the loans to investors to purchase suspect loans from banks, although the taxpayer is on the hook for the second part of the program, which targets purchase of mortgage-backed securities (the typical so-called toxic assets). Check this post for clarification. But the gov't is nevertheless giving investors a huge incentive here assuming auction prices are acceptable to institutions holding these crappy assets.
