TARP Was All About Wall Street Bonuses, Not Main Street Lending; You Were Lied to Sucker (Again)
By John Titus
“The last time I was on a road trip was 20 years ago exactly. I was on my way to prison.”
--Ruben Castillo, Easter Sunday 2011, DAY 1 of the Bailout voyage
Remember one of the biggest benefits that Main Street was going to get from TARP?
According to the top Republican banking lapdog at the time, Treasury Secretary Paulson, we needed TARP so banks would “deploy, not hoard, their capital.”
The top Democratic banking lapdog, current Treasury Secretary Timothy Geithner, concurred with his Republican lapdog counterpart, stating that TARP was supposed to “promote the stability of the financial system and increase lending.”
So TARP was going to be all about increased lending to businesses. That was the story back then, anyway.
Thirty months later, of course, we know that the goal of increased lending is yet another epic fail by the Obushma Administration (or is it Bushama?), as lending began a cliff dive as soon as TARP passed.
The question is why.
One simple reason for the massive failure of TARP to spur lending is that the dynamic duo of banking lapdogs were flat out lying when they said that was the goal. “Main Street lending” is a phrase that came straight out of Wall Street’s massive PR machine throughout mainstream media. Lending to legitimate businesses (as opposed to fraudulent banks) was never what TARP was about. You’re worse than a sucker if you think it was, you’re a Wall Street dupe.
Suckers get burned playing shell games run by hustlers. But those hustlers are skilled. Getting duped by Wall Street means you’ve fallen prey to the only skill Wall Street has left—telling preposterously bad lies. Remember Timberwolf?
Instead of lending the money to Main Street, the bankers lent it to the Federal Reserve, i.e., to a private banking cartel. In essence, $700 billion was transferred from the publicly owned U.S. Treasury to the privately owned and operated Federal Reserve.
Three days after TARP passed, you see, the Fed announced that it would begin paying interest on excess reserves by member financial institutions.
Excess reserves is money parked by member banking institutions with the Fed—money over and above what those banks are required to keep with the Federal Reserve.
Paying interest on excess reserves was unprecedented in the Fed’s (then) 95-year history.
Naturally, this unprecedented welfare program for Wall Street billionaires exploded, from $2 billion in excess reserves in August 2008 to $793 billion in January 2009.
Thus, rather than helping legitimate business, the Federal Reserve harmed those businesses by offering the Welfare Banks an alternative outlet for their ill-gotten TARP monies. The billionaire Welfare Banks parked their cash with the Federal Reserve so they could enjoy risk-free lending and an endless income stream.
Predictable, the TARP/excess-reserves-giveaway exacta combo was an untrammeled disaster, leading the confused and forlorn Washington Post to lament: “Lending has declined, and banks that got government money on average have reduced lending more sharply than banks that didn't.”
It was no accident that the Fed announced the excess reserve interest payments as part of its Wall Street welfare plan just three days after TARP passed. On the contrary, Congressional banking minions baked that result into the cake by writing that very outcome into the TARP legislation itself.
But lending the public’s TARP money to the Fed wasn’t the worst thing Wall Street did after going tits-up and demanding that Congress make it whole. No, the worst thing Wall Street did was to reward itself for turning into Welfare Street. For this act, these incompetents (at best) decided to pay themselves bonuses of $18.4 billion for that foul year.
How much of a giveaway is the interest-on-excess-reserves welfare program? To get an idea, consider Bank of America—which paid no income tax whatsoever for 2010—which “earned” a cool $63 million for the first quarter of 2011 alone.
Enquiring minds who asked Bernanke in October 2008 what interest rate he was proposing for this particular Wall Street welfare program would have learned that the Fed chairman was completely clueless.
``We're not quite sure what we have to pay in order to get the market rate, which includes some credit risk, up to the target,'' Bernanke told economists Oct. 7. ``We're going to experiment with this and try to find what the right spread is.''
In plain English, Bernanke had to wait for his Wall Street masters to tell him how high to set the new excess reserves rate.
Now he knows: high enough to pay themselves billion-dollar bonuses, but low enough to avoid taxes. Everyone knows welfare recipients don’t pay taxes. But the welfare recipients on Wall Street are different: they get massive bonuses no matter how much welfare they receive.
Not one Wall Street banker has done jail time or even been prosecuted for any of the thousands of perpetrated frauds that resulted in the destruction of trillions of dollars in wealth.
Ruben Castillo, by contrast, did three years for selling 2 pounds of magic cocoa powder for around 20 grand. He’s paid his debt to society.
No one on Wall Street has.