Latest From Elizabeth Warren: "Taxpayers Risked $4.3 Trillion With TARP; Bailout Expectations Now Built Into The System"

We have the COP's November report in full PDF, a 1-page summary from Dr. Warren, the video report as delivered by Dr. Warren, as well as her Friday morning appearance on CNBC.

• Warren: Bailout Expectations "Now, Built Into The System"

• Taxpayers Risked $4.3 Trillion

• Break For Companies In Bailout's Fine Print

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Video: Dr. Elizabeth Warren Discusses COP's November Report With CNBC

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Video: Warren Introduces COP's November Report On TARP

• One-Page Summary from Dr. Warren and the COP Panel

While Taxpayers Will Likely Profit, Guarantees Carry Enormous Risk and Created Significant Moral Hazard

WASHINGTON, D.C. - The Congressional Oversight Panel today released its November oversight report, "Guarantees and Contingent Payments in TARP and Related Programs." The Panel found that the programs' income will likely exceed their direct expenditures, and that guarantees played a major role in calming financial markets. These same programs, however, exposed American taxpayers to trillions of dollars in guarantees and created significant moral hazard that distorts the marketplace.

During the financial crisis, the federal government dramatically expanded its role as a guarantor. Treasury, the FDIC, and the Federal Reserve Board together negotiated to secure hundreds of billions of dollars in assets belonging to Citigroup and Bank of America. In addition to increasing the deposit insurance coverage of bank accounts, the FDIC established the Debt Guarantee Program (DGP) to stimulate the market for banks to issue debt and raise capital, and Treasury acted to reassure anxious investors by guaranteeing that money market funds would not fall below $1.00 per share.

Altogether, the federal government's guarantees have exceeded the total size of TARP, making guarantees the single largest element of the government's response to the financial crisis. At its high point, the federal government was guaranteeing or insuring $4.3 trillion in face value of financial assets under the three guarantee programs discussed in the Panel's report. The enormous scale of these guarantees played a significant role in calming the financial markets last year. Lenders who were unwilling to risk their money in distressed and uncertain markets became much more willing to participate after the U.S. government promised to backstop any losses.

The Panel found that Treasury took an aggressive stance in protecting taxpayer interests, and the Panel did not identify any major flaws with their implementation of the guarantee programs. Even so, these programs carried significant risk. In many cases, the American taxpayer stood behind guarantees of high-risk assets held by potentially insolvent institutions.

These guarantee programs also created significant moral hazard. Guarantees create price distortions and can lead market participants to engage in riskier behavior than they otherwise would. In addition to the explicit guarantees analyzed in the Panel's report, the government's broader economic stabilization effort may have signaled an implicit guarantee to the marketplace: the American taxpayer stands ready to provide a financial backstop for certain markets and large market players to avert possible economic collapse. To the degree that investors, lenders and borrowers believe that such an implicit guarantee remains in effect, moral hazard will continue to distort the market.

The extraordinary scale of these guarantees, the significant risk to taxpayers, and the corresponding moral hazard leads the Panel to conclude that these programs should be subject to extraordinary transparency. The Panel specifically identified the guarantee of Citigroup assets under AGP -- the largest single guarantee offered to date -- and strongly urges Treasury to provide regular, detailed disclosures about the status of the assets backing up this guarantee. Treasury should disclose greater detail about the rationale behind guarantee programs, the alternatives that may have been available and why they were not chosen, and whether these programs have achieved their objectives. This should include an analysis of why Citigroup and Bank of America were selected for AGP and not others.

Recommendations are provided in the full report, which can be found HERE

Comments

[DailyBail]

Wall Street Cries ‘Feed Me’ or World Will End: Susan Antilla
http://www.bloomberg.com/apps/news?pid=20601039&sid=afCVGLt3daN8

[DailyBail]

The Permanent Tea Party
Independent voters have become like a herd of cattle looking for political leadership.
http://online.wsj.com/article/SB10001424052748704013004574515453039975302.html

[DailyBail]

One Year Later: The Post-TARP Questions We Should Be Asking
http://www.huffingtonpost.com/dear-john-thain/one-year-later-the-post-t_b_344285.html

[Wil Martindale]

Taxpayers guaranteed NOTHING willingly. Washington stole that money from taxpayers against their will and made that guarantee. That is an important distinction. For the kind of risk Washington engaged in, taxpayers should now be sharing in windfall profits just as GS and JPM are. Instead we are absorbing the losses by being taxed to death at the Federal, State and local levels.
You cannot water down the theft and exposure of and to the taxpayer. We will NEVER be fairly rewarded for that exposure and risk, and treasury HAS NOT protected taxpayer interests - it has protected the banking sectors interests.

Warren and Bair are weak. They need to get their estrogen levels checked by Tavakoli.

[DailyBail]

Warren and Bair are weak. They need to get their estrogen levels checked by Tavakoli.

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I get your point will...relative to the fire of Tavakoli, bair and warren seem tame...in Bair's case it's because she is a republican amongst democrats...geithner has already made noise about ousting her...so she treads carefully...

And Warren has said a lot of very negative things about turbo and treasury...this was her most positive report yet...she wants the job to head the CFPA so she is also perhaps a bit cautious about turbo...

[James H]

Warren has gone out of her way to say things that no one else (working for the govt.) had the balls to say in public. I give credit where it's due. Bair, however, is a disaster. And yet, "disaster" is a step above whatever you call Geithner, Paulson and Bernanke -- our language does not yet have an adequate word to describe that collossal clusterfuck. Warren has actually done a good job -- she has no power whatsoever, not even subpoena power, but she's done enough to be universally hated by the vampire squids.