Did TARP Prevent a Financial Collapse of World Economies?

Obama claimed in his State of the Union speech that he stopped global financial Armageddon AND made a profit for the American taxpayer by implementing the Trouble Asset Relief Program (TARP), which cost the tax payer 700 billion dollars. Ben Bernanke, Chairman of the Federal Reserve, also makes this claim together with the former Treasury Secretary Hank Paulson (former CEO of Goldman Sachs) and current Treasury Secretary Timothy Geithner, in that the taxpayer has made a handsome profit. Even Warren Buffet has also claimed that TARP saved the world.

Did TARP really do anything other than extend and deepen the severity of the financial crisis that continues to be of grave concern in 2012 not only in the United States, but in Europe as well? Did TARP actually save the U.S. auto industry from bankruptcy or did it save U.S. union auto manufacturing jobs? Was there really a financial crisis or was it merely a crisis of competent leadership?

When the government is controlling the accounting methods it is difficult to determine where the reality turns into fantasy. Obama declared there was a profit made and it was due, as he claims, to his superior management skills. It is most unfortunate that we live in a time of political doublespeak in which failure is depicted as success and success is aggressively portrayed as failure.

The facts prove that the success of TARP is in the fantasies woven in the minds of children claiming to be America’s leading prophets and financial wizards. Yet these same prophets declare ignorance in foreseeing the financial collapse. And the financial wizards all proclaimed that they were immune from financial reckoning. So we in effect take the words of those responsible for creating the problem and expect them to fix it.

So if we are to believe the problem makers it is like asking the ignorant, which is what these people you call leaders have proven to be, to fix something of their creation, especially given that they did not know they were creating, tends to lead to esoteric solutions.

These solutions are usually so convoluted that they are worse than the original problem. And in order to escape responsibility the ignorant make accusations that something far worse is going to befall society. This takes the focus away from the ignorant responsible in order to focus on a nonexistent problem. And that ladies and gentlemen was how the TARP tar baby was born.

The other possibility for how the TARP tar baby was created could be explained by the fact that the bankers new they had bad loans and created mass hysteria in order to create a scenario in which the government bureaucrats would blindly follow. This would permit banks to offload bad loans to the government, which they did via Freddie and Fannie, whilst also making a little profit by taking free government money.

The government devised and forced a strategy on to the banks forcing them to get even bigger than they were prior to being “Too Big to Fail” through buyouts, such as in the case of Bank of America and Merrill Lynch. In pursuing this strategy, banks were able to buyout competitors with taxpayer money and have the acquisition backed up by the full faith and credit of the government. Banks like Goldman Sachs, who wanted their chief competitors out of the way told the government not to bail them out, hence Lehman is allowed to fail in the largest bank failure in American history.

Jamie Dimon, CEO of JP Morgan Chase (now the largest bank), recently claimed in an interview with Charlie Gasparino (FOX Business reporter and author) that TARP worked. But why wouldn’t he make that claim – his company benefited from receiving $25 billion in free money, even during a time when he claimed his bank was in a secure stable financial position.

Aside from the numerous constitutional issues brought about by the actions taken by the federal government in bailing out private corporations with taxpayer money, the TARP money was approved by Congress based on a fraudulent claim, by the Treasury Secretary and Ben Bernanke, that the money was to be uses in buying “troubled assets”.

One known fact is that the $25 billion profit claim by Obama is a fallacy. Also, not all of the appropriated $700 billion in bailout money was used. The money was not used for troubled (toxic) assets, but rather everything else -- to include funding mergers and buyouts of competitors. And it is well documented that the bailouts did not prevent companies from filing bankruptcy.

In addition banks moved many of their toxic assets/mortgages over to Freddie Mac and Fannie Mae. Essentially the banks transferred cancerous assets to Freddie and Fannie, which placed the bad assets with the taxpayer with a total cost of $148 billion to date. In addition, it is estimated that Freddie and Fannie will need another $215 billion just to keep these government failures alive.

Based on financial analysis of the current accounting facts, Freddie and Fannie could result in costing the taxpayer $363 billion. Therefore, if we take the current known figure of $148 billion and subtract the illusionary $25 billion profit, the reality is that the TARP cost taxpayers at least $123 billion, with a potential loss of $338 billion.

Similarly, the General Motors bailout of over $18 billion which was done under the Bush Administration, Obama took credit for GM regaining the world’s number 1 auto maker. To begin with the bailout did not prevent GM from going bankrupt, so the government did waste $18 billion because GM finally filed for bankruptcy, because of unsustainable union contracts and benefits. In fact Obama took credit for saving Detroit, which is now itself facing bankruptcy.

http://www.rawstory.com/rs/2011/11/17/facing-bankrupcy-detroit-mayor-calls-for-wage-cuts-corporate-tax-increase/

GM emerged from the fastest bankruptcy in history -- 40 days. How GM managed the bankruptcy was quite simple. The federal government most likely gave the bankruptcy judge some gentile suggestions. In fact I would like to see where this judge is today. However, GM was permitted to form another entity that had noting to do with GM and use this holding company to hold toxic assets.

Obama also claimed that General Motors paid off the TARP bailout money with interest, which is a false claim. GM did pay off the TARP money, but did so with capital from taxpayer loans in another account.

Another claim Obama made and took credit for was the return of GM to the number one car manufacturer. This number one ranking includes 1.27 million cars that were sold in China by companies that GM joint ventured with and hold only a 25 percent stake. Therefore, it would seem reasonable that only 25 percent of the total number of cars sold should count.

In addition, Volkswagen is complaining because GM counts their truck sales and they do not. When accounting for the 1.27 million autos sold in China, which includes truck sales, coupled with the Volkswagen’s inclusion of truck sales -- GM is really NOT the number one auto maker.

Furthermore, Obama verbosely proclaimed that GM and Chrysler were back due to his (Obama’s) leadership, but yet GM still owes taxpayers $25 billion. However, the one shining example of true American capitalism, Ford whom is profitable and did not take bailout money, was not mentioned once by Obama. And it is this way of thinking that illustrates the government’s position, especially the thought process of a communist idealist like Obama, in that a company that is unprofitable and in debt over $25 billion is considered a successful.

With respect to Obama’s claim that the TARP prevented the economic collapse of the American financial system is substantively flawed. When the Treasury Secretary and Fed Chairman spoke to Congress the allegation was that the capitalist system would collapse without an “immediate” cash flow injection into the system in order to prevent a the seizing of credit markets and intra-bank lending.

The problem, as dictated by Hank Paulson, that required “immediate” congressional action was predicated on the assumption that the financial system was facing imminent collapse within “days” not weeks. Paulson, Geithner and Bernanke all claimed that without a government backed bailout of $700 billion within days, the economies of the world would collapse.

It took a couple of weeks for the $700 billion to be approved by Congress and according to a report by the Special Inspector General Troubled Asset Relief Program(SIGTARP)to date the government loaned out $413 billion.

If the TARP program was such an urgent need to prevent bank failures, which according to the FDIC there were 92 failed banks in 2011, down from the 157 failures in 2010 and 140 failures in 2009, then it would stand to reason that there would have been fewer bank failures during this period.

Furthermore, even with the bailout credit markets froze and are still frozen and businesses could not obtain loans and still cannot. Banks would not lend money to businesses for inventory and payroll. The money that banks were given via TARP in many cases went to buying out a competitor as opposed to lending the money to customers. For example, Key bank bought out its primary rival National City Bank for $5.58 billion within days of obtaining taxpayer bailout money.

This obviously raises the question that if the banks were in such financial distress, would they not have been seeking to sell assets to raise cash levels or hoard the bailout funds if indeed they were in financial trouble? Under any normal business practices a company under financial duress does not acquire other companies.

And under circumstances of financial instability, whereupon a particular industry is on the verge of collapse, companies do not seek to make acquisitions of those assets. The risk of acquiring such distressed assets, especially a conservative commercial bank, during a period of chaos creates unknown risks that companies have a fiduciary responsibility to protect shareholders from.

In order for anything to be considered a success it must be evaluated against historical terms. One of the measures is the number of bank failures prior to the bank bailout. In 2003 there were a total of 3 failures. 2004 claimed 4 banks and 2005 thru 2006 resulted in no bank foreclosures. And in 2007, according to the Federal Deposit Insurance Corporation, there were 3 failed banks. Therefore, during a similar time period there were nearly 400 bank failures after TARP as opposed to merely 10 bank failures between 2003 through 2007.

In conclusion, for anyone to make an intellectually based argument supporting the claim that TARP prevented financial Armageddon and that Obama was the Black Knight in shining armor riding his trusty white steed into battle, is devoid of any gray matter was so ever. It is quite clear that had there been strong competent leadership well schooled in the knowledge of capitalism and believed in the fundamental underpinnings of the American financial system, as opposed to the timid bleeding heart liberal progressives that fundamentally misunderstand capitalism, America and its citizenry would be far stronger and in exceedingly healthier financial condition than this cluster f**k Obama claims is a success.