Global financial markets are immensely complicated and it is hard to understand all the ins and outs of what the Treasury Department and the Federal Reserve are trying to do. We all do our best. Take an institution like Bank of America. Their CEO Ken Lewis says that he took more TARP money than he should have. What does that mean?
From the government’s perspective it wasn’t good enough to give Bank of America the bare minimum amount of money it needed to avoid immediate insolvency. The main reason to keep the bank afloat is so that it can resume lending money, and to do that they need capital reserves. And, remember, we’re operating on the assumption (alternatively, the fantasy) that these banks aren’t really insolvent, so there isn’t any easily definable amount of money that any of them need. For the government the question is “how much money do you need to resume/increase lending?” Bank of America comes up with an answer and the government responds to it.
Because a key priority of the TARP (and various Fed) program(s) was to fix the credit crunch, some or many of the banks that received funding probably did not need money to avoid insolvency. They were asked to take the money anyway, just in case, and to help them build up their capital reserves. But banks that took money without necessarily needing money did not want that information shared with the public because it would damage their reputation and their share price. Lord knows they didn’t expect to be treated like they are in receivership and be told how much compensation they can provide to their executives.
It’s all a fine mess and no one feels sorry for anyone, but along come guys like Rep. Alan Grayson and Sen. Bernie Sanders to gum up the works. They want to know who the recipients of TARP (and Fed) money are and what they’re doing with the money. And that screws up the plan. Sen. Sanders, for example, just had the following modest amendment passed into the budget bill.
SA 875. Mr. SANDERS submitted an amendment intended to be proposed by him to the concurrent resolution S. Con. Res. 13, setting forth the congressional budget for the United States Government for fiscal year 2010, revising the appropriate budgetary levels for fiscal year 2009, and setting forth the appropriate budgetary levels for fiscal years 2011 through 2014; as follows:
On page 48, line 24, insert “including the identity of each entity to which the Board has provided such assistance, the value or amount of that financial assistance, and what that entity is doing with such financial assistance,” after “2008,”.
It’s a basic reporting requirement for the Board of Governors of the Federal Reserve. Sanders wanted them to tell Congress what they are doing with our money and now I guess they will have to do that. It’s instructive to look at the vote on this amendment which passed 59-39, but which also deeply split the two caucuses. Here are the Democrats that voted against it, basically voting to let the Fed loan money with no transparency.
Baucus (D-MT), Bayh (D-IN), Bennet (D-CO), Bingaman (D-NM), Carper (D-DE), Dodd (D-CT), Gillibrand (D-NY), Johnson (D-SD), Kaufman (D-DE), Kohl (D-WI), Lautenberg (D-NJ),
Lieberman (ID-CT), Menendez (D-NJ), Nelson (D-NE)
Reed (D-RI), Schumer (D-NY), Shaheen (D-NH), Udall (D-CO), Warner (D-VA)
Notice that the senators from Connecticut, New York, New Jersey, and Delaware all voted against it. That’s banking interests in their home states dictating the outcome. The same thing probably influenced Sen. Reed of Rhode Island and Sen. Johnson from South Dakota. The rest of this group is just Blue Dogging it for big business.
How about Republicans that voted for Sanders’ amendment?
Brownback (R-KS), Bunning (R-KY),
Burr (R-NC), Coburn (R-OK), Collins (R-ME), Cornyn (R-TX), Crapo (R-ID), DeMint (R-SC), Ensign (R-NV), Graham (R-SC), Grassley (R-IA), Hutchison (R-TX), Inhofe (R-OK), McCain (R-AZ), Risch (R-ID), Roberts (R-KS), Sessions (R-AL),
Snowe (R-ME), Specter (R-PA), Thune (R-SD), Vitter (R-LA)
These folks don’t vote with the unabashedly socialist Bernie Sanders too often. Some of them like Hutchison and Brownback are running for governor in 2010 and probably are afraid of populist blowback. The same is true for endangered incumbents like Bunning, Burr, Specter, and Vitter. The rest are just movement conservatives that really don’t give much of a crap about Wall Street because they’re either safe in their seats or they get enough money from the religious right.
And, to get back to the point at the top, it isn’t even unambiguously true that Sanders’ amendment is a good idea. Transparency is good…no question. But everyone that has testified about this before Congress from either the Bush or Obama administration has agreed that it will discourage participation to insist on full disclosure. Of course, it doesn’t have to be an either/or situation. Retroactive disclosure would discourage criminal acts. Or, we could treat it the same way we do sensitive national security information and designate a bipartisan handful of congressmembers to be ‘read-in’ to the program. There are middle grounds between no oversight, accountability, or transparency and a totally ineffective program. Sanders’ amendment might satisfy that requirement or it might not.
What’s depressing is how predictable Congress is in how they vote. Vulnerable senators cave to populism while liberal Democrats cave to their banking constituents.
The problem with this whole mess is how it was sold to Congress and to the public in the first place.
Paulson, Bernanke and the rest came to Congress in a panic and convinced everyone that without an injection of capital, the economy would fail. That was the argument. But there’s a difference between “the economy will collapse” and “banks will collapse” that wasn’t made clear at the time, and that really has only gotten more muddled since.
The banks that didn’t need the capital thought they were getting essentially free money from the government. The banks that did need the capital were getting money to keep them afloat. None of us regular people knew which banks were which and because the idea of handing money to a bank that isn’t having problems is somewhat counter-intuitive (or, more honestly, somewhat nuts), so people just assumed that all of the banks taking the money were in trouble.
Then you see and hear things from the bankers and their aversion to salary caps and whatnot and it begins to make you mad. Very mad – because here we are giving them a helping hand and keeping them from failing and they just want to raid the Treasury and take it for themselves. That may not what they think is going on, but to those of us on the outside that’s exactly what it looks like.
Paulson’s plan was flawed from the very beginning because he couldn’t explain it in a way that wouldn’t piss off a good-sized chunk of the country. Geithner has the same problem now because he’s following essentially the same type of plan. The guys running the show now need to step out of their technocratic boxes for a moment and think about this – there’s more to this than fiddling with numbers on a spreadsheet and making everything okay. Americans are more than happy to pitch in and help when times are bad, but we get awfully angry when we feel like our good deeds are being taken advantage of. That’s what this feels like to a lot of folks I’ve talked to – that the banks are conning everyone and robbing the Treasury. And changing that perception is going to be incredibly hard without ramping up the levels of transparency to levels that the bankers are uncomfortable with.
(They should get used to it – for the next few decades I suspect that bankers are going to be under a microscope and heavily regulated world-wide.)
they didn’t think they were getting free money. They thought they were getting low-interest loans. Aside from that, I totally agree with you.
Don’t forget, some of these banks didn’t even need to be loaned money, the only reason they weren’t lending was because they were scared not because they didn’t have money to lend and stay solvent at once.
Under the government’s theory, we needed to loan them money.
We can set up government-run lending institutions and we already have them in real and quasi form (Freddie and Fannie, e.g.). But we wanted to do something fast, and that meant getting big lenders to start lending. In an environment where everyone is being punished for lax lending and it cash-poor, that isn’t an easy thing to accomplish.
Banks got money so that they could lend. Their survival and the survival of their shareholders and bondholders was a secondary consideration. In essence, we propped up people that should have been wiped out because there was a matter of expediency involved.
So, now we have a situation where this plan has real political vulnerabilities that are being picked apart for good and ill.
If you’ll look, I supported the initial vote to avoid apocalypse (or I guess, TARP 1). My girlfriend’s aunt’s restaurant closed because she couldnt’ get loans. It was a fancy restaurant and doing well but because of the fear it had to shut down due to lack of operating expenses loans, so I have a very concrete example of what was going on.
I’m just pointing out how much of a cluster fuck this ended up being. And as far as I’m still not sure I fully buy into whether the economic system would have utterly collapses had it not been passed when it did, but I’m glad we didn’t find out.
That said, some banks did not need to be loaned money where need means “had no money to lend and remain solvent.”
If there are banks too scared to accept transparency AND too scared to loan at the same time, then I’m going to have to lean towards “fuck ’em” they’re more trouble than they are worth.
A state-secrets type disclosure would be the worst of all possible worlds I think. Even worse than none.
Oh, and of course we can’t forget that Alan Grayson’s staffer is Matt Stoller.
By “free money” I meant the money they were going to get by investing the money that the government was loaning them at severely discounted rates, not the money that they got from the government directly. If the government is handing you money at near-zero interest levels, just about any reasonably safe investment made with that money is going to be found money as far as the bank is concerned. Whether we’re talking about solid old-fashioned loans, or purchasing decent assets from another bank that’s on the rocks, or whatever – the government was essentially handing them almost a guarantee of money with no strings attached – a banker would be a fool to pass that by.
So lemme get this straight, Jeff Sessions, John Cornyn, and freakin’ James Inhofe can vote for the right thing to do, but not Evan Bayh, Chris Dodd, or Chuck Schumer.
Jesus wept. If you’re on the wrong side of history from James Inhofe on something that actually motivated that blockhead to apply actual oversight, you need to pack it in.
stopped clocks?
In any case, right or wrong, I’m not real proud of anyone’s vote on this one.
Don’t think anyone’s been proud of a Senate vote in a long, long time, period.
inhofe and cornyn have never voted right ever and never will.
The trust in our elite jut isn’t there to give them this money with no strings attatched. I don’t need to look at who voted for what. We are too corrupt a country to trust a small group of elites with deciding what’s right and wrong here. If this were Europe, it would be different. We’d have strong enough Democratic traditions (instead of traditionally thwarting Democracy, as we do). We’d have a safety net, so it wouldn’t look like the government only takes care of rich people. This isn’t Europe, and the American government really isn’t interested in taking care of anyone who makes under 100k a year. You seem to want everyone to pretend we live in a better world than the one we really live in.
‘Caving to populism’ is called Democracy. You may trust a small, narrow elite with small, narrow interests to make all the decisions for us. I don’t. In a perfect world, Monarchy would be the perfect form of government. This isn’t a perfect world.
personally, i would prefer to know which banks are insolvent and which aren’t, so i can best choose which to do business with.
and I do want to know who’s getting my tax money and what they’re doing with it.
I think you do too. I’m tight on cash by a good $300 this month for a few bills. care to loan it to me? would you be upset if i didn’t pay my bills with it and came back and asked for more money?
We don’t offer assistance simply because they would appreciate it; we offer assistance because without it they would fail and take the entire country with them. If they’re not sufficiently desperate to receive our assistance in the full light of day then they’re not in a position where they need our money. These are our conditions – if they won’t accede to our wishes then they can bend over and get acquainted with the invisible hand.
Two tears in a bucket…
Yes, a large enema, rather than an MRI seems in order.