The Great TARP Disinformation Campaign - Part One

April 24, 2011

By John Titus
The greatest economic lie to take root in mainstream American media in the last 10 years is that the $700 billion TARP bailout was necessary to prevent some sort of economic meltdown. Federal Reserve Chairman Ben Bernanke said we needed it. Warren Buffett and his partner Charlie Munger said it was necessary. And so did Treasury Secretary Tim Geithner as well as his predecessor Hank Paulson. Legions of journalists and news anchors and commentators to this day dutifully repeat the Gospel According to St. Benjamin: but for the enormous 2008 bailout of too-big-to-fail institutions, we would have plunged into an abyss; hell, let’s face it—we all would have been eaten by giant lizards if the bankers didn’t get that money. Never mind the fact that no one—not one single economist or journalist who carries Bernanke’s water—ever bothered to explain how such a collapse would have occurred. Don’t believe us? Next time someone tells you the bailout was necessary, ask how the depression would have occurred, like exactly. You’ll hear crickets. What Bernanke’s minion army of mainstream media personalities won’t mention are the many facts that expose the TARP bailout as the total sham that it was—literally the world’s biggest heist in broad daylight.  There are so many facts that destroy the TARP story that it’s almost embarrassing to hear so many Americans repeat the Great Lie like the obedient servants that they are.  
 
The Bear Stearns Lie Before there was too-big-to-fail, there was too-interconnected-to fail. That was the phrase used by the breathtakingly incompetent Bush administration to justify its assistance in helping JP Morgan “rescue” Bear Stearns. (Some rescue. JP Morgan destroyed Bear, one of its very few competitors.)  Allowing Bear Stearns to fail, went the yarn, would have dragged down many of the firms that were connected to Bear. The only problem with that story is that it was lie. In January 2008, two months before it went belly up, Bear had “a $10 billion market cap (trading below its book value), down from a peak of $25 billion.” Would the collapse of a financial institution that large plunge the United States into financial Armageddon?  The idea is patently ridiculous. Just look at Lehman Brothers. Lehman Brothers was allowed to fail. It collapsed in September 2008 when the stock market swoon began in earnest. At its peak, Lehman had “a market capitalization of close to $60 billion.” That is, Lehman was more than twice the size of Bear Stearns. If Bear Stearns’ failure would have destroyed a lot of companies in sympathy with it, then the failure of Lehman Brothers would have annihilated even more businesses should it have failed. And Lehman did fail. And guess what? The world didn’t collapse into dust. When Lehman went down it took a couple of hedge funds with it. Main Street was unscathed.  
 
Hank Paulson’s Toxic Asset Lie In late September 2008, Hank Paulson came screaming to Congress about the immediate need to buy “toxic assets.” Buying toxic assets, he told us, was necessary “to avoid a continuing serial [sic] of financial institution failures and frozen credit markets that threaten American families’ financial well-being, the viability of businesses both large and small, and the very health of our economy.” Got that? We taxpayers are toast if we don’t pony up and buy $700 billion in toxic assets. It was just another lie. Ten days after TARP passed, Paulson said he’d changed his mind and that the $700 billion would not be used to buy toxic assets. And guess what didn’t happen? The world didn’t collapse. But one thing is certain: Hank Paulson and his Wall Street buddies had a good belly laugh at every one of you gullible chumps who believed his Chicken Little story.  
 
The Credit Freeze Lie. In an unprecedented propaganda campaign, American mainstream media outlets proclaimed that “credit markets around the globe seized up and the world seemed on the verge of a cataclysmic financial meltdown.”We were told that banks weren’t lending to businesses, weren’t lending to each other, and that businesses weren’t issuing commercial paper. TARP was needed to alleviate the conditions.  At least that was the party line. Each and every one of these claims was exposed as false only two weeks after TARP passed on October 3, 2008—by the Federal Reserve itself: The financial press and policymakers have made the following three claims about the nature of the crisis.  
 
1. Bank lending to nonfinancial corporations and individuals has declined sharply.  
2. Interbank lending is essentially nonexistent.  
3. Commercial paper issuance by nonfinancial corporations has declined sharply, and rates have risen to unprecedented levels.
Here we examine these claims using data from the Federal Reserve Board and Bloomberg. Our argument that all three claims are false is based on data up until October 15, 2008.
 
 
There you have it from the horse’s mouth: the reasons given for TARP were complete bullshit. That Times piece linked above, incidentally, is dated two months after the Federal Reserved debunked the credit freeze story. Keep that in mind the next time you feel inclined to believe anything the Times has to say about the economy.   The Systemic Risk Lie. Whenever the thorny subject of too-big-to-fail banks comes up, we are told in grave tones that such a failure is unthinkable due to “systemic risk.” The phrase is intended to convey the sense that the entire system would collapse if some pile of steaming crap like Citigroup blew up. “Systemic risk” is just pseudo-scientific nonsense designed to scare anyone who’s bad at math. In fact, the phrase was invented for the sole purpose of justifying bailouts and crony capitalism in the first place. David Stockman was Ronald Reagan’s young Director of Office of Management and Budget until he resigned in disgust in 1985. Here is what he had to say about “systemic risk” and TARP: There was no philosophy behind [TARP]. There was never an analysis done. This whole idea that there was systemic risk, it’s just a term made up by people who were looking for ways to meddle in the economy (see mark 5:08 here). 
 
 
In Part Two, we’ll take a look at what may be the biggest TARP lie of all, that it was good for Main Street.