TARP wasn't 'paid back,' not by a long shot

So it turns out that TARP loans weren't "paid back," we should be owed about $300 billion in risk premiums for the year 2009 alone, and this is not to mention the $16 trillion in Fed bailouts for the international TBTF banks. TARP was absolutely free money.

TARP wasn't really even a loan, it was a gift, it was a sick joke on U.S. taxpayers, because the bailed-out banks can pay off their TARP loans with even more government loans at zero-percent interest. (Remember how the GOP went ballistic when GM tried a similar trick to pay off some of its TARP loan?) The bailed-out banks have in turn used this borrowed money to fund their trades, which only have to earn more than 0.0% return to net them a profit. In fact, it gets worse, because often the banks have turned around and used those borrowed funds to... buy risk-free U.S. treasuries, which means they loaned their government loan money back to the government at a guaranteed higher rate of interest. But it's even worse still: the banks have been leveraging their trades, "borrowing at least $10 for every $1 of equity capital they have, to increase the size of their bets."

Stealing isn't enough vice for these sleazebags -- they have to gamble, too!

Any small-time crook of average intelligence could be explained this scam in a matter of an hour and then become a successful present-day Wall Street CEO. I mean, how could you not make stacks of cash with a scam as perfectly foolproof as this?

(Well, nearly foolproof. There is one remote pitfall: If the banks' unlimited ATM machine, the U.S. Government, is severely downgraded and defaults on its debt. Then the banks would be pretty screwed... which is why they've been giving U.S. politicians and the unwashed electorate sanctimonious lectures about the need to get our fiscal house in order, i.e. gut Social Security, Medicare, Medicaid, unemployment insurance, and government-sponsored health care, so that their scam can continue indefinitely.)

"We've got to re-think the relationship between taxpayers and financial institutions," said Prof. Ed Kane of Boston College, "Taxpayers are essentially implicit stockholders. And they're in for the worst part of the ride." The downside, that is. While the banks get all the upside -- all the profit. This is moral hazard, big time. Not to mention colossally unjust corporate socialism on a scale never before seen on Earth.

This is further evidence that the Occupy protests, despite their shortcomings like the occasional errant turd, have chosen absolutely the correct target, while erstwhile bailout opponents in the Tea Parties have, sadly, taken their eyes off the ball. The TPs now blame the attempted cure (fiscal stimulus) for the illness caused by the financial crisis and aggravated by the bank bailouts which continue to distort the real economy while denying desperately needed credit to firms and households.

Ed Kane - Measuring Systemic Risk To Empower the Taxpayer

Uploaded by INETeconomics

August 23, 2011 | YouTube

URL: http://youtu.be/REvOBX2jg14

Simon Johnson: TARP report on 'Citi weekend,' moral hazard of TBTF

As Johnson describes, countries which host TBTF banks become their hostages when those banks act irresponsibly and cause a crisis. This is TBTF's moral hazard:

"This [TBTF banks' global presence] is also a major problem for the 'just let 'em go bankrupt' philosophy. There is no framework for cross-border bankruptcy, in the sense of clear rules about who gets compensated with what kind of assets. The courts can presumably sort it out, but it would take many years and cost billions of dollars in legal and other fees. As a result, if a large bank is on the brink of failing, everyone will assume the worst around the world and run for the doors."

[...]

"Or we could also make the biggest banks smaller -- ideally, small enough to fail. This was the proposal of the Brown-Kaufman amendment to Dodd-Frank, which died on the Senate floor, largely because of opposition from Geithner and the Treasury Department. So we'll do nothing, it seems, except let these massive banks become bigger and even less well managed.

"Until next time, the people who run the country will again face the same choice as in November 2008: provide an unsavory bailout for management, shareholders and creditors that rewards failure and stupidity, or run the risk of causing a second Great Depression.

"If the big banks get large enough, we'll become like Ireland today -- saving those institutions will ruin us fiscally, destroy the dollar as a haven currency, and end financial life as we know it."

'Citi Weekend' Shows Too-Big-to-Fail Endures: Simon Johnson

By Simon Johnson
January 18, 2011 | Bloomberg

URL: http://www.bloomberg.com/news/2011-01-18/-citi-weekend-shows-too-big-to-fail-endures-commentary-by-simon-johnson.html

Ex-Fed Chair Volcker speaks up for real financial reform

Yes! While Greenspan is still suffering shock & awe over what his laissez-faire, Ayn-Randish economic philosophy has wrought on the global economy, another former Fed Chairman can see exactly what went wrong and how to fix it.

It's Hammer Time!

Paul Volcker Finds a Hammer

By Simon Johnson

December 17, 2009 | NY Times Economix Blogs

For most the past 12 months, Paul Volcker was sitting on the policy sidelines.

He had impressive sounding job titles — member of President Obama's Transition Economic Advisory Board immediately after last November's election, and then head of the new Economic Recovery Board. But the Recovery Board, and Mr. Volcker himself, has seldom met with the President.

Economic and financial sector policy, by all accounts, has been made largely by Tim Geithner at Treasury and Larry Summers at the White House, with help from Peter Orszag at the Office of Management and Budget, and Christina Romer at the Council of Economic Advisers.

With characteristic wry humor, Mr. Volcker denied in late October that he had lost clout within the administration: "I did not have influence to start with."

But that same front-page interview in The New York Times included a well-placed shock to the prevailing policy consensus.

Mr. Volcker, a legendary former chairman of the Federal Reserve Board with much more experience with Wall Street than any current policy maker, was blunt: We need to break up our biggest banks and return to the basic split of activities that existed under the Glass-Steagall Act of 1933 — one highly regulated (and somewhat boring) set of banks to run the payments system, and a completely separate set of financial entities to help firms raise capital (and to trade securities).

This proposal is not just at odds with the regulatory reform legislation then (and now) working its way through Congress; Mr. Volcker is basically saying that what the administration has proposed and what Congress looks likely to enact in early 2010 is essentially bunk.

Speaking to a group of senior finance executives, as reported in The Wall Street Journal on Monday, Mr. Volcker made his point even more forcefully. There is no benefit to running our financial system in its current fashion, with high risks (for society) and high returns (for top bankers). Most of financial innovation, in his view, is not just worthless to society – it is downright dangerous to our broader economic health.

Mr. Volcker seems to make substantive public statements only when he feels important issues are at stake. He also knows exactly how to influence policy — he has not been welcomed in the front door (controlled by the people who have daily meetings with the president), so he's going round the back, aiming at shifting mainstream views about what are "safe" banks. Many smart technocrats listen carefully to what he has to say.

This strategy is partly about timing — and in this regard Mr. Volcker has chosen his moment well.

The economy is starting to recover, but this process is clearly going to take a while and unemployment will stay high for the foreseeable future. At the same time, our biggest banks are making good money — mostly from trading, not much from lending to small business — and they are lining up to pay very big bonuses.

Not only is this contrast — high unemployment versus bankers' bonuses — annoying and unfair, it is also not good economics. Bankers are, in effect, being rewarded for taking the risks that created the global crisis and led to huge job losses. And they are being implicitly encouraged to do the same thing again.

The case for keeping big banks in their current configuration is completely lame. Even if we are lucky enough to avoid another major any time soon, the fiscal costs are enormous and coming right at you (and your taxes).

Now that Paul Volcker has picked up his hammer, he will not lightly set it aside. He knows how to sway the policy community and he knows how to escalate when they don't pay attention. Expect him to pound away until he prevails.

Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author with James Kwak of "13 Bankers," forthcoming in April 2010.