Monday, October 12, 2009

Report: Treasury Misled Public With TARP

The Federal Reserve Chairman Also Misled the Public. The Treasury and Fed Work in Tandem. See a Pattern? A Problem?

Despite critics expressing alarm about the Fed’s immense power during the financial crisis, Ben Bernanke still insists that the Fed should be put in charge of regulating the nation’s biggest financial institutions.

Yes, the Fed Chairman actually favors this extraordinary concentration of power, despite his total inability to thwart, or even foresee, the Great Recession. Not only did Bernanke not foresee the economic storm that was on the horizon, he actually said that things were quite rosy at US banks.

"Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks,” said Chairman Bernanke in 2006.


“Importantly, we see no serious broader spillover to banks or thift institutions from problems in the subprime market; the troubled lenders, for the most part, have not been institutions with federally insured deposits,” said Bernanke on May 17, 2007.

Clearly, Bernanke saw no reason for regulation or oversight. Everything was just fine — until it wasn't.

Perhaps now realizing the Fed's failure to see what many others could, or merely bowing to political pressure, Bernanke says responsibility for monitoring broader risks in the financial system should go to a council of regulators.

But Bernanke says the Fed would be merely one of several players on the new council, and endorses the Obama Administration’s proposal to have the Treasury lead that council.

How convenient, since the Treasury and the Fed are joined at the hip like Siamese twins engineered by Dr. Frankenstein.

Ultimately, the Treasury is no better than the Fed and the two work together hand in hand.

A new report on the bank bailouts says the Treasury misled the public and was the benefactor of the mega banks.

Neil Barofsky, the special inspector general who oversees the government’s bailout of the banking system, says the Treasury may have unfairly disbursed billions to the biggest banks under the Troubled Assets Relief Program.

Nine of Wall Street’s largest players were given billions of dollars of taxpayer money by the Treasury through the TARP.

Barofsky’s office also says that regulators were wrong to tell the public last year that the earliest bailout recipients were all healthy.

On October 14, 2008, Treasury Secretary Hank Paulson said that the banks were “healthy” and accepted the money for “the good of the U.S. economy,” so that they could increase lending to consumers and businesses.

In truth, regulators were concerned about the health of several banks that received that first bailout, the inspector general contends.

On October 5th, the day his new report was released, Barofsky discussed Paulson's bogus claim, and the TARP, with CNBC.

"As we disclose and describe in our audit, this just wasn't an accurate statement," Barofsky told CNBC. "The Treasury and the Federal Reserve had serious concerns about the health of some of these institutions. They didn't really do a test, they didn't really review, there really wasn't a criteria — when they made the decision to give this $125 billion — about the relative health of these institutions. And, as we note in our report, those statements raised expectations and it hurt Treasury's credibility."

Barofsky believes that there is an important lesson to be leaned from all of this.

"It's very important, when we look back, to learn these lessons. And I think that one of the key ones that we learned from this is that transparency, being honest with the American people, it's important — not just for the sake of transparency, but because of the long term, unintended, negative consequences that come when we're not honest, when we're not forthcoming. The bottom line is that the American people saw very shortly thereafter that these were not all healthy institutions and lending didn't increase. So that hurts the credibility of the program... Even in times of crisis — particularly in times of crisis — let's make sure when we're making public statements that they're accurate and that they're truthful."

Citigroup, JP Morgan Chase, Bank if America, and Wells Fargo were among the nine financial giants to receive billions in taxpayer assistance.

When asked by CNBC if he thought it was inevitable that taxpayers would wind up losing some of the TARP money, Barofsky replied, "I think it's extremely unlikely that we're going to have a dollar-for-dollar return. And I don't think the program, as designed, is made to have a dollar-for-dollar return."

So, forced to prop up banks deemed "too big too fail," the taxpayers have been burned once again.

It's said that sunlight is the greatest disinfectant. Both the Treasury and the Fed — especially — need lots of disinfectant.

Let the sun shine.

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