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« Ron Paul Takes Lead In Iowa, GOP 'Frightened' | Main | Senators Say Bernanke Promises Fed Won't Bailout Europe »

Tale Of The TARP Two Years Later: How The Elite Media Perpetuated The Lies

Baker destroys the grand illusion that the TARP was good for you.  There was no financial system save.  TARP kept Wall Street in the business of paying bonuses (Blankfein was paid $125 million), aided by a confused and captured media elite happy to spew nonsense.

Paul Kanjorski has said famously:

"If they had not done that, in their estimation, by 2 PM that afternoon $5.5-trillion would have been withdrawn and would have collapsed the U.S. economy and within 24 hours the world economy would have collapsed.

We talked at that time about what would have happened. It would have been the end of our economic and our political system as we know it."


By Economist Dean Baker

Co-Director of the Center for Economic and Policy Research

The Terrible Tale of the TARP Two Years Later

Two years ago, the top honchos at the Fed, Treasury and the Wall Street banks were running around like Chicken Little warning that the world was about to end.  This fear mongering, together with a big assist from the elite media (i.e. NPR, the Washington Post, the Wall Street Journal, etc.), earned the banks their $700 billion TARP blank check bailout.  This money, along with even more valuable loans and loan guarantees from the Fed and FDIC, enabled them to survive the crisis they had created.  As a result, the big banks are bigger and more profitable than ever.

Now, the same crew that tapped our pockets two years ago is eagerly  pitching the line that their bailout was good for us.  It may be the case the history books are written by the winners, but that doesn't prevent the rest of us from telling the truth.

Let's step back to where we were two years ago. The huge investment bank Bear Stearns had collapsed. So had Fannie Mae and Freddie Mac, the mortgage giants. Lehman Brothers, the fourth largest investment bank, had also gone down. AIG, the country's largest insurer, had been put on life support by the government.

At this point, Merrill Lynch, Morgan Stanley, and Goldman Sachs, the three remaining independent investment banks, all faced runs that would quickly sink them absent government intervention. Citigroup and Bank of America, two of the three largest commercial banks, were also almost certainly insolvent. Many other banks also faced insolvency, especially if they took big losses on their loans to other institutions that were about to go bankrupt.

This was when the Wall Street boys made their mad rush for the public trough. They enlisted everyone that mattered in the effort, including Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, and Timothy Geithner, then the head of the New York Federal Reserve Bank.

The line was that the economy would collapse if Congress did not immediately rescue the banks. They were prepared to make up anything to save the banks in their hour of need. Bernanke was probably caught in the biggest fabrication when he told Congress that the commercial paper market was shutting down.

If true, this would have been disastrous, since most major companies rely on selling commercial paper to meet their payroll and other routine expenses. If this market shut down, it would mean that even healthy businesses could not pay their workers and suppliers, which would quickly cause the whole economy to grind to a halt.

Bernanke did not bother to inform Congress and the public that he had the ability to single-handedly support the commercial paper market. He waited until the weekend after Congress approved the TARP to announce that he would establish a special Fed lending facility to buy commercial paper.

In reality, the Fed almost certainly had the ability to keep the economy going by sustaining the system of payments even if the chain of bank collapses was allowed to run its course. In the 80s Latin American debt crisis, the Fed had an emergency plan to seize the money center banks, and keep them operating, if a default by a major Latin American country pushed them into insolvency.

By the time of the Lehman crisis the financial markets had been severely stressed for over a year. The first major bank collapse had occurred more than 6 months earlier. It would have required a degree of unbelievable incompetence and/or irresponsibility for the Fed not to have devised a similar emergency plan to keep the systems of payments operating in a worst case scenario.

Furthermore, even if the Fed had been as incompetent as many claim, it would not have taken long for it to improvise a system whereby certain payments would be prioritized and the system of payments would again be up and running. The notion that we would be sitting in a 21st century economy and reduced to barter payments was an invention of the bank lobby to get the taxpayers' money.

The first Great Depression was the result of a decade of failed policies, not a single bad mistake at its onset. There was absolutely nothing that we could have done back in September-October of 2008 that would have required that we experience a decade of double-digit unemployment. The specter of a "second great depression" is a fairy tale invented by the bank lobby to make the rest of feel good about having given them our money.

We are also supposed to feel good that the vast majority of the TARP money was repaid. This is another effort to prey on the public's ignorance. Had it not been for the bailout, most of the major center banks would have been wiped out. This would have destroyed the fortunes of their shareholders, many of their creditors, and their top executives. This would have been a massive redistribution to the rest of society -- their loss is our gain.

It is important to remember that the economy would be no less productive following the demise of these Wall Street giants. The only economic fact that would have been different is that the Wall Street crew would have lost claims to hundreds of billions of dollars of the economy's output each year and trillions of dollars of wealth. That money would instead be available for the rest of society. The fact that they have lost the claim to wealth from their stock and bond holdings makes all the rest of us richer once the economy is again operating near normal levels of output.

Instead, we have the same Wall Street crew calling the shots, doing business pretty much as they always did. The rest of us are sitting here dealing with wreckage of their recklessness: 9.6 percent unemployment and the loss of much of the middle class's savings in their homes and their retirement accounts. And the lackeys of the Wall Street crew are telling us that we should be thankful that we didn't have a second Great Depression.  Maybe we don't have the power to keep the bankers from picking our pockets, but we don't have to believe their lies.



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Reader Comments (20)

Two years ago, the top honchos at the Fed, Treasury and the Wall Street banks were running around like Chicken Little warning that the world was about to end.
This, of course, did wonders to calm the markets and inspire confidence.
Sep 21, 2010 at 2:46 PM | Registered CommenterDr. Pitchfork
Now, the same crew that tapped our pockets two years ago is eagerly pitching the line that their bailout was good for us. It may be the case the history books are written by the winners, but that doesn't prevent the rest of us from telling the truth.
Bam! Direct hit. I had forgotten how much I liked Dean Baker.
Sep 21, 2010 at 2:47 PM | Registered CommenterDr. Pitchfork
I don't know how all of this will play out, but there's a sense right now that the MSM, the Treserve, and the TARP babies are ready to declare victory and go home. They really think they've won and that the rest of us will fall in line. I'll admit myself to feeling a bit of defeatism of late.

But we have elections coming up soon, and the Tea Party people will make absolute hay out of every incumbent's bailout vote (if they haven't already decided not to run). It will give a whole new reason to revisit the bailouts, the TARP and everyone's role in it. PLUS, we get to tell the bastards what we think. We indeed live in interesting times, fellow Daily Bailers. And this time that might be a good thing.
Sep 21, 2010 at 2:55 PM | Registered CommenterDr. Pitchfork
Yes...baker is awesome on TARP...he really gets it...and he has a pretty big pulpit from which to tell the truth...the way i look at things, we're in for a tough slog...at least 5 more years to work through the deleveraging...but Wall Street will continue to do pretty well over this period...every year the disconnect from main street will grow larger...there will be more and more outrage as we move forward...wait until bonus season this year...it will get ugly...
Sep 21, 2010 at 3:56 PM | Registered CommenterDailyBail
Rlr comment removed...you can post that link on another thread...please understand i get tired of the obama/citizenship/family stories...
Sep 21, 2010 at 4:10 PM | Registered CommenterDailyBail
Paulson: 25% unemployment rate without AIG bailout


Jsut another example of the Paulson fear-mongering machine...
Sep 21, 2010 at 4:11 PM | Registered CommenterDailyBail
Kanjorski Reveals Paulson's Closed-Door TARP Threats


I recommend you check out this one...
Sep 21, 2010 at 4:11 PM | Registered CommenterDailyBail
Kanjorski Asks Paulson To Describe His Greatest Fears From The Financial Meltdown


And this one has even more detail...
Sep 21, 2010 at 4:12 PM | Registered CommenterDailyBail
A former top executive at Citigroup who participated in the deregulation of Wall Street during the Clinton administration and recently was tapped by President Barack Obama for a top White House post told a Senate panel last week that deregulation didn't lead to the recent financial crisis.

Jacob "Jack" Lew, Obama's nominee to lead the Office of Management and Budget, the White House agency entrusted with ensuring that federal regulations reflect the president's agenda, was asked Thursday during his confirmation hearing before the Senate Budget Committee by Sen. Bernie Sanders whether he believed that the "deregulation of Wall Street, pushed by people like Alan Greenspan [and] Robert Rubin, contributed significantly to the disaster we saw on Wall Street."

Lew, a former OMB chief for President Bill Clinton, told the panel that "the problems in the financial industry preceded deregulation," and after discussing those issues, added that he didn't "personally know the extent to which deregulation drove it, but I don't believe that deregulation was the proximate cause."


This is worth reading in full...
Sep 21, 2010 at 4:15 PM | Registered CommenterDailyBail
Rich Professor Who Complained About Obama's Tax Hikes Says He Doesn't Make $450,000 A Year


Crazy story...check it out...
Sep 21, 2010 at 4:17 PM | Registered CommenterDailyBail

From the Professor's blog...threats to his family....crazy stuff...read the previous link above to get the full story...
Sep 21, 2010 at 4:20 PM | Registered CommenterDailyBail

Fed signals it will take further steps if needed

Fed signals it is prepared to take new relief steps if needed; holds off for now
Sep 21, 2010 at 4:21 PM | Registered CommenterDailyBail
Financial Rescue Nears GDP as Pledges Top $12.8 Trillion


Read all about it...
Sep 21, 2010 at 6:43 PM | Registered CommenterDailyBail
"Rlr comment removed..."



Sep 21, 2010 at 8:16 PM | Unregistered CommenterRecoverylessRecovery
Sorry to have missed your post RLR, from DB's description it might have been a good one. I see you haven't lost your charm. You are a twat, no doubt about it.
Sep 21, 2010 at 8:52 PM | Unregistered CommenterZ
Coming from The Master Twat Himself, that's quite a compliment. Thank you.
Sep 21, 2010 at 11:42 PM | Unregistered CommenterRecoverylessRecovery
And then the "mob bosses" at these banking institutions decided to reward themselves for this massive robbery/accomplishment - the stage two to the robbery over the 2000 to 2008 period. So people screamed for a clawback of those bonuses. And just as that momentum caught on, they decided to act noble and pay on TARP. But where did they get the money if the economy wasn't moving and no one was buying their BS debt "instruments?" Another payout by the USG through the 100% AIG payoff. And then their buddies at the FED did the real TARP by buying up those "toxic assets." And now we pay again as some of that money jumps into commodities to inflate them just for us.

TARP itself is two major crimes. First was extortion/blackmail. Anytime you threaten someone to get them to pay you and your friends money, that is what it is called. The second was bait-and-switch. This happened when the original deal to take on the toxic assets was switched to a stock buyout - not as advertised.
Oct 6, 2011 at 4:18 PM | Unregistered CommenterCurtis
"The first Great Depression was the result of a decade of failed policies, not a single bad mistake at its onset"...Actually,it was a direct result of creating the Fed. As Lindbergh stated in 1913, "When the President signs this act [Federal Reserve Act of 1913], the invisible government by the money power -- proven to exist by the Monetary Trust Investigation -- will be legalized. The new law will create inflation whenever the trusts want inflation. From now on, depressions will be scientifically created." When, "all of a sudden" we found ourselves needing money for WWI, the Fed was happy to step in. Hello big debt(see a pattern yet?). Plenty of money/credit for war. Enter the Roaring Twenties". Massive expansion of credit. Hello 1929. Big contraction of credit,depression. Then WWII. All of a sudden there is plenty of money/credit for war. Fast forward to today. Contraction of credit...but still plenty of money for war. Anyone note the cycle yet?
Oct 6, 2011 at 4:50 PM | Unregistered Commenterrobertsgt40
..it never ends with these A holes...from Fox News,

"More than $2 billion from the Small Business Lending Fund was used to repay bailout funds community banks were loaned under the Troubled Asset Relief Program, according to The Wall Street Journal."

"The $4 billion federal fund was created this year to raise capital for smaller banks, and in turn move them to loan to small business owners. These community banks used more than half of the funds to pay down their TARP debt, the Journal reported."
Oct 6, 2011 at 6:51 PM | Unregistered CommenterDave Mowers
Oct 7, 2011 at 1:04 AM | Registered CommenterDailyBail

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