Friday, November 1, 2013

HOW WALL STREET'S TRILLION DOLLAR BAILOUTS STARTED ... THE TARP TROJAN HORSE


Economist Tim Taylor at Conversable Economics has a very readable overview of  the first mega-bailout after the market began to tank in 2008, the Troubled Asset Relief Program (TARP). Taylor also has some very sensible questions about the program, which I encourage you to read here.

For those of you who have forgotten, five years ago President Bush signed into law the Emergency Economic Stabilization Act, which initiated TARP. It was funded with $700 billion and, as I never tire of pointing out in class, kick-started our on-going bailout of Wall Street. Indeed, after TARP was put in place it was almost immediately followed by President Obama's $787 billion economic stimulus program.


Of the $700 billion in TARP money committed to markets after 2008 the Treasury Department reports that only $421.5 billion has been disbursed. The money has gone to five industry areas (click here for Treasury interactive):

1. AIG, $67.8 billion.
2. Auto industry, $79.7 billion
3. Banks investment programs, $245.1 billion
4. Credit market programs, $19.1 billion
5. Housing programs, $9.8 billion 

In case it escaped you, the banks and insurance companies got over $330 billion showered on them from TARP to backstop their market bets. On the other side of that coin we see that programs for people who were losing their homes have yet to spend $10 billion (this was no accident).


President Obama's $787 billion stimulus program followed TARP, which helped pave the way for the Wall Street bailout to morph into a multi-trillion dollar financial monster of credits, loans, and assorted market guarantees. More specifically, with more than $4 trillion disbursed and almost $14 trillion currently at risk, the federal government has effectively become Wall Street's ATM cash & credit machine. Like it or not, Wall Street's biggest market players have become wards of the state.

If you're inclined to to believe all the happy talk about TARP turning a small profit (a few billion dollars), or that the program is winding down, there's another issue to consider.

The $421.5 billion in bailout funds for TARP was really little more than a down payment on more than $14 trillion dollars that has been made available to Wall Street since TARP's roll out. In reality, TARP was little more than a financial Trojan Horse for the banks.

Whether you believe that TARP was a Trojan Horse or not, here's my question. How can the financial market players on Wall Street call themselves free market entrepreneurs if their market bets are backed with trillions in federal credits, loans, and other market guarantees?

Seriously, why aren't more people asking this question? My guess is they don't like where it leads us.

- Mark 

No comments:

Post a Comment