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Sunday, September 26, 2010

The Big Tarp Lie



Whenever I get into a conversation about banks, it is unnerving that so many people believe they have paid back Taxpayers in their entirely from the bailouts!! TARP was a fraction of the bailouts/ benefits bestowed upon the banks during the crisis.

Click here for a video that I believe truly characterizes how the banks benefitted from the Bailouts, how they continue to operate, and why we cannot and will not recover until we fix some fundamental problems in America.

CLICK HERE FOR THE BIG TARP LIE

To simplify as much as possible:

1) First and most importantly, Banks, as a result of a gift from Congress at the height of the crisis, DO NOT NEED TO FAIRLY VALUE THEIR ASSETS. The accounting term is 'mark to market'. Remember ENRON? Remember what liars and cheaters they were?

Guess what?...the very things that Enron did to deceive shareholders is A COMMON PRACTICE FOR BANKERS TODAY!!

2) Ever wish you could borrow at 0% and borrow hundreds times more than you are worth? Think how great that would be!...you could invest in United States Treasuries at 3.5% (risk free) and make more than any job could ever pay you.

Guess what...that is exactly what a select group of banks get to do. Go to Ben Bernanke at the Discount Window – take out a ton of money at slightly over 0% - then go to Tim Geithner at the United States Treasury and have the US Govt (taxpayers) pay them 3.5% to borrow that very money from the bank.


3) Fannie/ Freddie - wouldn't it be great if the government would assume (pay off) your debt from you? You could go to the Mall, spend a ton a money you don't have, but not have to worry about it because the government would 'flip the bill'.
Guess what? That is essentially what banks are doing!!..Here is how is happens. Banks borrow money from the Federal Reserve to issue home loans. They take fees for 'originating' the loan, and then pass the risk to the taxpayer when Fannie Mae, Freddie Mac or the FHA buy it from them...not a bad deal for the banks, heh?

In sum, here is how I see the US banking system in its current state. Many banks, if forced to actually account for their bad loans properly would be insolvent, and thus bankrupt. They know it… which is exactly why they are not lending money at their historically normal rate.

Instead, they use their money to 'gamble' in the stock market, and buy US Treasuries (sending the US government/ taxpayer further in debt)...why loan money at 5% (which has a chance to not be paid back) when you can loan money to the Government at 3.5%?! Not a bad gig...if you can get it.

That said, the banks, with the help of our political leaders (both republicans and democrats), get to siphone money out of the system from homeowners paying interest on loans that shouldn't have been issued, and continue to pay themselves enormous bonuses while the rest of the country is still in the dumps.

What can we do about it?

We must force our political leaders to be accountable. Either they are not bright enough to understand the issues we face or they are intentionally deceiving us. Neither is acceptable. As a country, we need to stop trying to cure a broken leg with band-aids. It won't work long term, and the longer we 'kick the can', the harder it will be to recover.

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