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Barofsky: TARP Bailout Still Not Working

From CNN’s Money.Com:

Bailout cop: TARP’s not working

By David Ellis, staff writer

January 31, 2010

NEW YORK (CNNMoney.com) — The watchdog charged with monitoring the government’s $700 billion bailout unleashed one of his harshest criticisms of the program to date, questioning its overall effectiveness.

In his latest quarterly report to Congress, special inspector general Neil Barofsky said that the Troubled Asset Relief Program, or TARP, has failed to boost bank lending as well as halt the spread of foreclosures — two key aims of the sprawling program.

"Whether these goals can effectively be met through existing TARP programs is very much an open question at this time," Barofsky said in the report.

When Congress enacted TARP, the hope was that injecting capital into hundreds of banks would spur lending and keep the economy from spiraling even deeper into recession.

But since then, lending to both consumers and businesses has continued to decline.

Earlier this month, the Treasury Department reported that the 22 banks that got the most aid from the government’s various bailout programs have cut their small business loan balances by $12.5 billion since April.

Punishing these banks with taxes should help them lend more, right?

The Obama administration did propose a joint program between the Treasury Department and the Small Business Administration in October to make capital cheaper for community banks that commit to increasing their small business lending.

Three months later however, the government is still drafting guidelines for that initiative.

Mr. Obama is busy. And he has his priorities.

Barofsky, whose office has been closely tracking the evolution of TARP, also criticized the Obama administration’s Home Affordable Modification Program.

Even as Treasury allocated $35.5 billion towards that foreclosure-prevention program as of the end of last year, only 66,500 homeowners have received permanent modifications, with another 787,200 homeowners in trial modifications.

Under fire for the low number of people receiving long-term help, the Treasury Department in late November ramped up pressure on servicers to convert borrowers to permanent modifications.

Oh, joy. More people who shouldn’t have gotten loans in the first place are now getting practically free houses.

This is ‘social justice’ at work.

Still, there is no sign that the rate of foreclosures is slowing down anytime soon. Earlier this month, RealtyTrac, the online marketer of foreclosed homes, reported that foreclosure filings surged to a record 3 million in 2009, up 21% from 2008…

So if mortgage ‘modifications’ aren’t working — that only means we must do more of them.

A separate estimate issued earlier this year by the Congressional Budget Office warned that TARP will ultimately cost taxpayers approximately $159 billion.

Funny how CNN neglects to mention that these losses are almost entirely due to Mr. Obama’s car companies, General Motors and Chrysler – and not the banks that are being punished with new fees taxes.

But the UAW’s gold-plated pensions and health insurance must be preserved at all costs.

Meanwhile, compare and contrast CNN’s business writers’ treatment of Mr. Barofsky’s report with that from those haters of greed at the Associated Press:

Watchdog: Bailouts created more risk in system

Daniel Wagner and Alan Zibel, AP Business Writers, On Sunday January 31, 2010

WASHINGTON (AP) — The government’s response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future, an independent watchdog at the Treasury Department warned.

The problems that led to the last crisis have not yet been addressed, and in some cases have grown worse, says Neil Barofsky, the special inspector general for the trouble asset relief program, or TARP. The quarterly report to Congress was released Sunday.

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," Barofsky wrote.

Since Congress passed $700 billion financial bailout, the remaining institutions considered "too big to fail" have grown larger and failed to restrain the lavish pay for their executives, Barofsky wrote. He said the banks still have an incentive to take on risk because they know the government will save them rather than bring down the financial system.

Barofsky also said his office is investigating 77 cases of possible criminal and civil fraud, including crimes of tax evasion, insider trading, mortgage lending and payment collection, false statements and public corruption.

One case concerns apparent self-dealing by one of the private fund managers Treasury picked to buy bad assets from banks at discounted prices. A portfolio manager at the firm apparently sold a bond out of a private fund, then repurchased it at a higher price for a government-backed fund. A rating agency had just downgraded the bond, so it likely was worth less, not more, when the government fund bought it. The company is not being named pending the outcome of Barofsky’s investigation.

Barofsky renewed a call for Treasury to enact clearer walls so that such apparent conflicts are less likely…

Much of Barofsky’s report focused on the government’s growing role in the housing market, which he said has increased the risk of another housing bubble

Perhaps “much of Barofsky’s report focused on the government’s growing role in the housing market,” but look at what the Associated Press chose to highlight in its headline and first seven paragraphs.

This article was posted by Steve on Monday, February 1st, 2010. Comments are currently closed.

2 Responses to “Barofsky: TARP Bailout Still Not Working”

  1. proreason says:

    The banks aren’t lending because businesses are not borrowing.

    Similarly, auto sales have declined nearly 50%, even though the auto manufacturers are eager, even desperate, to build and sell more cars. And the same thing is happening with houses, even though getting a low interest loan is as easy as it has ever been, and home builders would trip over themselves to build millions of new homes if people would just borrow.

    I know economics is compex and a “science”, but a grade schooler can understand why.

    The idiot Barofsky would behoove himself to talk to his children.

    In the unlikely case that he doesn’t already know the answer.

  2. tranquil.night says:

    “He said the banks still have an incentive to take on risk because they know the government will save them rather than bring down the financial system.”

    WRONG and such a bad manipulation of the truth! Pro is right, banks aren’t lending because no one’s borrowing. There is still LITTLE TO NO MONEY TO BE MADE IN LENDING RIGHT NOW.

    The banks are doing what the banks do, profiteering, through trades and 0% Fed insurance rates. The problem isn’t just that hedges and banks are exploiting their deals it’s that the government is enabling it by not reforming; that is to say they are in on the scheme.

    The problem isn’t necessarily the mechanisms, definitely not the system, it’s the frggn’ politique.

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