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« Update On The Foreclosure Fraud Crisis (Links, Latest Developments, New Ratigan Op-Ed, Denninger Video) | Main | Dylan Ratigan Absolutely Annihilates The Legacy Of Larry Summers While Steve Rattner Sits 3 Ft. Away 'In Denial' »
Thursday
Oct072010

Meet Herb Allison: Minister Of Bailout Propaganda

By Dr. Pitchfork

The Truth About Bank Bailouts & Analysis Of TARP Alternatives

TARP Czar Herb Allison joined the idiots parade of TARP defenders Sunday with his Huffpo piece called "The Untold Story of TARP."  Of course, you know that story already.  You must have heard it a dozen times this week, alone.  It's the same story Steve Rattner told in the Financial Times and it's the same story Tim Geithner told to Dan Gross just yesterday:  TARP saved the world and the people who hate it don't know what they're talking about. The problem with this story is not that it's gone "untold," but that nobody believes it!

Let's cut to the chase.  Time to play whack-a-mole.  (Bullet-point quotes taken from Allison's article.)

  • "No one wanted to bail out Wall Street.  No one wanted to use taxpayer dollars to rescue an industry that helped cause the worst economic crisis in a generation.  It was unfair.  It was appalling.  But it was necessary.  We had no other choice."

My Comment:  Of course we had other choices.  Loads of them.  I spent hours documenting several of them just yesterday.  (And see below.)  WHACK!

  • "Two years ago, we stood at the brink of an economic catastrophe.   Ordinary American families were questioning whether their money was safe in banks."

My Comment:  No, they were not.  Not even close.  This is just blatantly false.  Citi?  B of A?  Didn't happen.  WHACK!

  • "And now that the fog of an intense financial panic has lifted, it's clear that the critics and cynics were wrong.  TARP has proven remarkably successful at stabilizing the economy and laying the foundation for future growth."

My Comment:  Post hoc, ergo propter hoc.  Not even close, Herb.  TARP, along with Bernanke and Paulson's gloom, doom and martial law threats destabilized the economy.  We've documented well the government actions that helped stabilize the economy.  And TARP isn't one of them.  WHACK!

  • "But we're on the path to recovery.  Businesses have added jobs for eight straight months.  Private investment and confidence in banks have returned.  The cost of borrowing for businesses, municipalities and individuals has declined dramatically."

My Comment:  Um, no.  We're not "on the path to recovery."  The low, low interest rates on corporate and government debt reflect quantitative easing by the Fed and the extreme weakness in the economy, not the ability to finance a hot, speedy recovery.  This has been addressed here, here and here.  Herb has it exactly backwards.  WHACK!

  • "In fact, independent experts have estimated that overall, without the federal government's response to the financial crisis, including TARP, there would be nearly 8.5 million fewer jobs today and the unemployment rate would exceed 15 percent."

My Comment:  Someone please tell me when Obama's favorite economist, Mark Zandi, and former Fed vice-chairman, Alan Blinder, suddenly became "independent experts."  (They are neither.)  The little propaganda piece they put out making these claims has been savaged by economist and blogger alike.  Negative points for citing it.  WHACK!

  • "Many people think that TARP cost $700 billion.  But Treasury is now confident that the lifetime cost to taxpayers will be less than $50 billion.  Repayments have continued to exceed expectations.  Three-fourths of the TARP funds provided to banks have already been returned.  And the exit strategy AIG announced last week puts taxpayers in a considerably stronger position to recoup our investment in that company."

My Comment:  We've addressed this before.  This is nothing but a red herring.  The costs of the bailouts extend way beyond TARP's nominal price tag.  And the fact that we were paid back with our own money in many cases doesn't make us feel any better.  Besides, we have rigged our entire fiscal and monetary order, through both "stimulus" and ZIRP, to save bank executive jobs and bonuses.  If it cost "only" $50B to save Jamie Dimon and Lloyd Blankfein, it was $50B too much.  Herb is deliberately missing the point, here.  WHACK!

  • "Many people think that TARP funds only went to Wall Street.  But more than 450 small and community banks participated in TARP, which helped them deliver credit to local small businesses and families."

My Comment:  The TARP infusions at small banks were an afterthought meant to provide political cover for politicians and the big banks.  Besides, TARP in many cases had a negative effect on lending because of the dividend and other restrictions.  Because of that, several small banks wanted out of TARP as soon as they realized they were being used, and many of them paid a steep price in getting out of the deal.  Nice try with this one, Herb.  WHACK!

  • "Many people think that TARP created a precedent for future bailouts. But President Obama and Treasury Secretary Geithner worked tirelessly with Congress to enact the Dodd-Frank Act, which will ensure that the American people are never again put on the hook for the reckless acts of a few financial firms.  That law gives the government new tools to shut down and dismember failing institutions rather than bail them out with taxpayer dollars."

My Comment:  "Many people"?  Try the entire corporate bond market.  Never mind the fact that we are STILL "on the hook" for the "reckless acts of a few financial firms."  The Frankendodd had ZERO effect on the rates banks pay in the corporate bond market.  In other words, investors see no more risk of losing their capital in the wake of "Financial Reform" than they did before.  Bank bondholders know they will be bailed out.  It happened before and it will happen again.  You know it.  I know it.  And I suspect Herb knows it.  WHACK!

--

The bottom line on TARP is that almost no one has been held accountable.  And almost everyone, even those most responsible, have kept their jobs, been promoted, been awarded huge bonuses, or have ridden off into the sunset with millions in ill-gotten gains.  Our entire monetary and fiscal order has been re-arranged to serve the interests of a few at the very top of the pyramid.  The middle class has borne most of the risk.  And much of that risk is still with us, whether in terms of our currency, the national debt, or social and political unrest.  All the talk about getting the TARP paid back is a red herring. If someone breaks into your house, tears the place up, and then sticks a gun to your head demanding $700B, you don't thank him when he pays you back.  Because a) you had a gun stuck in your face, and b) your house is still a freakin' mess.

The message of the bailouts is clear.  The guys at the top get served first, at our expense.  And the buck stops nowhere.

--

Below are some of the alternatives to TARP:

  • The Treasury, for example, stopped Paul Kanjorski’s fabled “electronic run” on the money market funds by issuing a blanket guarantee of all money market funds on September 19 – before TARP was even passed.
  • The Fed announced that it would intervene in the commercial paper market on October 7 -- four days after TARP was passed and nipped that problem in the bud.
  • Further, the Fed stepped up its activity under the TAF (Term Asset Facility) to $600-700B per month in the crisis period.  Along with its intervention in the CP market, the TAF was used to both supplement and reinforce the inter-bank lending market.
  • As for Rattner's claim that AIG would have failed without TARP, this is demonstrably untrue.  On September 17, AIG had already begun sucking tons of cash from a lending facility the Fed had set up the day before.  TARP had nothing to do with it.  At that time, TARP was nothing more than a few jots and tittles in Hank Paulson's panic-addled brain.
  • Though the TARP bill raised the FDIC limit to $250K, new legislation wasn’t needed for the FDIC to do so, or even for the FDIC to guarantee all bank deposits under a systemic risk exception – something which Bair, Paulson, et al. declared almost immediately after the bill was passed.  There was almost zero risk at this point of a depositor-led bank run, and the actions taken by the FDIC here could have been accomplished just the same whether it came as part of the total TARP legislation or not.
  • The same is true of FDIC guarantees of all bank creditors.  Under the systemic risk exception, the FDIC was authorized to do this without anything that came in the TARP legislation.  Part of this guarantee was achieved through the needlessly convoluted TLGP (Temporary Liquidity Guarantee Program), but the effect of the gurantees were the same and had nothing to do with toxic asset purchases or bank equity infusions through TARP

It was this set of programs, and not the idiocy of TARP, that calmed the waters and kept the credit markets functioning through the crisis period.

 

 

 

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Reader Comments (16)

Oct 7, 2010 at 2:57 AM | Registered CommenterDailyBail
Whalen added that recently agreed-to foreclosure moratoriums by GMAC, Bank of America Corp. /quotes/comstock/13*!bac/quotes/nls/bac (BAC 13.39, -0.17, -1.25%) and J.P. Morgan Chase & Co. /quotes/comstock/13*!jpm/quotes/nls/jpm (JPM 39.87, -0.03, -0.08%) are “only the start of the crisis” that threatens the financial foundations of the entire U.S. political economy. See earlier story on 'robo-signer' crisis.

The three lenders announced recently they would halt some foreclosures until they could determine whether or not employees signed off on affidavits without verifying the information in the paperwork.

Whalen argues that the largest U.S. banks remain insolvent and must continue to shrink. “Failure by the Obama administration to restructure the largest banks during 2007-2009 period only means that this process is going to occur over next three to five years — whether we like it or not. The issue is recognizing existing losses — not if a loss occurred,” he said.

http://www.marketwatch.com/story/us-bank-industry-entering-new-crisis-analyst-2010-10-06?siteid=patrick.net#lastupdate

read this one...a lot in here...
Oct 7, 2010 at 3:00 AM | Registered CommenterDailyBail
The uproar over bad conduct by mortgage lenders intensified Tuesday, as lawmakers in Washington requested a federal investigation and the attorney general in Texas joined a chorus of state law enforcement figures calling for freezes on all foreclosures.

http://www.nytimes.com/2010/10/06/business/06mortgage.html?_r=1&source=patrick.net

Soon we might get a freeze on all foreclosures...not long after that, you will begin to see large numbers of people stop paying their mortgages...this has a chance to turn into absolute utter chaos...wait for the lawsuits from people wrongfully foreclosed upon...seeking to regain their house from the new owners...i've been saying for days this could become the biggest story of the year...
Oct 7, 2010 at 3:09 AM | Registered CommenterDailyBail
Health Care’s Uneven Road to a New Era

http://www.nytimes.com/2010/10/06/business/economy/06leonhardt.html?source=patrick.net

Interesting details...
Oct 7, 2010 at 3:12 AM | Registered CommenterDailyBail
VINALHAVEN, Me. — Like nearly all of the residents on this island in Penobscot Bay, Art Lindgren and his wife, Cheryl, celebrated the arrival of three giant wind turbines late last year. That was before they were turned on.

“In the first 10 minutes, our jaws dropped to the ground,” Mr. Lindgren said. “Nobody in the area could believe it. They were so loud.”

http://www.nytimes.com/2010/10/06/business/energy-environment/06noise.html?src=me&ref=business
Oct 7, 2010 at 3:17 AM | Registered CommenterDailyBail
Another clean headshot, Dr. P, nice. Sent that one to the printer.

TARP was an enormous lie behind an even bigger theft perpetrated by the biggest financial losers in world history. The only way to defend it is to take Herb Allison's tack: spin more lies.

TARP-defending officials are sociopathic rats. Ignore their words and watch what they do instead. Right now rats like Herb are jumping ship as fast as they can. Makes me think an election bloodbath isn't the only thing in the pike.
Oct 7, 2010 at 3:02 PM | Unregistered CommenterCheyenne
cheyenne...do you write for any blogs currently..
Oct 7, 2010 at 3:30 PM | Registered CommenterDailyBail
DB--

Nah, I'm an industry outsider. My most complicated financial transaction ever was cashing dime super tickets. Half the stuff I read on blogs is Russian to me.

But I get the part about gambling on stolen money to recoup gambling losses on moronic bets. Those fools are easy to spot at the OTB, just look at hands and kneecaps. And those are the survivors of their weak breed.

Now, in the U.S., the gimps are fucking royalty only because American Idolators don't know how gimps come to be. And there's not an hour of my life I don't wonder how it's gonna end. Because it's gonna end.

But there's no fucking way I can write about fucking papers like CDOs when one could hit me in the face and I wouldn't know it. And I still have no fucking earthly idea what a "tranche" is or "notional."
Oct 7, 2010 at 7:28 PM | Unregistered CommenterCheyenne
Cheyene, glad you liked it. You're a smart guy, but an "outsider" as you say. Which parts of this piece were "Russian"? Or was it pretty clear for the most part?
Oct 7, 2010 at 8:25 PM | Registered CommenterDr. Pitchfork
Dr. P--

There's no theft (or crime) without a lie. You describe the lie very well. I understand damn near every sentence you write. TARP is the most poisonous financial lie ever. Please continue your outstanding work.

My sense is that killing the TARP-success narrative is a shiv to a Wall Street liver.
Oct 7, 2010 at 8:47 PM | Unregistered CommenterCheyenne
Couple more random thoughts, DB and Dr. P, then it's hay time.

First off, I'd like to punch Herb Allison in the face. I know he's a Vietnam Vet, which I respect. But what exactly did he do? My old man was an artillery captain in USMC, and came back irregular and died at 54. What was HA up to in southeast Asia? Like exactly.

Second, as much as I want to knock the taste out of Herb's effeminately condescending moron mouth, the urge is far higher for Ken Lewis, Ben Bernanke, elf. Paulson, Dimon, Lloyd, and Pandit. Complete cowards--and frauds.

Third, whenever Ravioli's on sale 10 cans for $10, I buy. Do you agree that's a sound purchase? I mean, toss in 1/4 stick of butter and you're gold. Right?

Fourth, I found the H.R. 3808 debate ignorant beyond reason. Fucking out-of-state notarizations are the norm already, no? No. the real problem is lack of standing--a constitutional issue that an Article 1 arm CANNOT cure. So I sense a wee of a side show here.

Great site, btw.
Oct 7, 2010 at 11:18 PM | Unregistered CommenterCheyenne
cheyenne...i took down your comment on 'doping' because i assume you meant to post it on another thread...if not, my bad...also i answered you last night about the sec flash crash report...on the thread where you asked about it but i don't remember which one that was...maybe chimerica pie...

and pitchfork....i sent your story to dylan ratigan today...he responded with 'loved it'...so you got that going for you...;)
Oct 8, 2010 at 1:25 AM | Registered CommenterDailyBail
and pitchfork....i sent your story to dylan ratigan today...he responded with 'loved it'...so you got that going for you...;)
---
That's really cool. Thanks for doing that.
Oct 8, 2010 at 2:12 AM | Registered CommenterDr. Pitchfork
happy to do so...he also enjoyed the story we did on his larry summers takedown with steve rattner sitting next to him...said he feels like going McEnroe with guests sometimes..;)...i'm going to put 3 or 4 of your tarp pieces in one email and send it to him soon...and i sent this herb allison story to joe w....he didn't print it but he might be linking to it in the future,...
Oct 8, 2010 at 2:43 AM | Registered CommenterDailyBail

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