11/24/2009 01:18:16 PM EST

Knocking Down The Biggest Excuse For The Bailout

posted by Cenk

Everyone's heard it a hundred times by now. Joe Biden said it when he was on The Daily Show last week. Tim Geithner says it every time he's on television or in a congressional hearing or in the car talking to himself. "We had to do the bailout. We didn't have a choice. The economy would have collapsed. What else could we do? It was unpleasant, but we had to bailout the largest banks."

Now, some might disagree with that. I don't. I agree we had to do something, and if we hadn't the economy probably would have cratered. But that's not the question or the problem at hand. The problem is how they did the bailouts. Namely, by giving away the store.

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The government's own inspector general of the TARP program says that we gave away $62 billion we probably shouldn't have - and will probably never get back. Anyone with any degree of sanity now realizes giving away this money to AIG counter-parties at hundred cents on the dollar was either crazy or complicitous. This was taxpayer money funneled to the largest banks in the world to cover their ill-conceived bets that would have never netted them their whole money back on the open market. If capitalism had prevailed, they would have gotten burned on most of that money. Instead cronyism reigned and they got every penny - from us.

To add insult to injury, Goldman Sachs says they didn't need that money from us, that they were covered no matter what because of other bets that they had out in the market. Great. Then give us our money back ($12.9 billion went to Goldman through AIG) and go collect on your other bets. Why the hell did we pay you if you claim you could have gotten that money from elsewhere? Tim Geithner told me we absolutely had to pay you otherwise the world was going to blow up.

The Obama team has burned a lot of goodwill doing this hideous giveaway to the same financial companies that caused this economic meltdown (at least for the rest of us since the bank executives are back to making huge bonuses). If they want to earn some of that goodwill back, they have to do better than the lame excuse of "we had to do it." You didn't have to do it this way. There were many other possibilities. You could have at least structured it so that if the banks went back to making money that we received a fair share for bailing them out - any rational investor would have. You wouldn't have covered up the biggest giveaway by funneling it through AIG (and not even letting us know in the beginning who you were giving the money, too).

It's about time they explain why they chose to do it this way - where the banks got every penny they wanted and we got left holding the bill. If Tim Geithner doesn't have a reasonable answer for that soon, the populist anger calling for his job is going to be perfectly justified.

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Knocking Down The Biggest Excuse For The Bailout | 6 comments (6 topical, 0 hidden)
Devil's Advocate (none / 0)

I'm no fan of Timothy Geithner and think he should be fired for different reasons, but might I play devil's advocate?

AIG was more than aware that the U.S. government would never let it collapse. It's arguable that they literally couldn't given how connected they were to the rest of the financial sector through their psuedo-insurance policies in the name of "credit protection."  So, consider this scenario. We have Timothy Geithner who needs to assure that AIG does not collapse. He cannot let AIG fail under any circumstances. The executives of AIG are all too aware of this. There company will fail if they do not enter an agreement with the U.S. government of some form. AIG will, logically, attempt to get the best deal possible. So, Geithner originally offered a lesser amount and it was turned down by AIG. AIG knows with near certainty that the government will bail it out, because it is mostly necessary. So, what incentive do they have to agree to a lower pay-out? No incentive exists there. While superficially it would appear that AIG was desperate, in reality, it had a substantially stronger hand at the bargaining table. Geithner and the government were not going to let them collapse, so why would they work with them? They would keep saying, "no", "no", "no" until the government finally caved in.

 

This was actually one of the reasons why I didn't like the TARP program, because it set up this type of scenario where the banks had so much more power at the bargaining table.

by caelum on 11/24/2009 01:01:57 PM EST

Repeat of my reply to sterno (none / 0)
Much as I don't think Geithner deserves his job, him getting the blame for how TARP was handled is a huge plate of disingenuousness.

To wit, "The authority of the United States Department of the Treasury to establish and manage TARP under a newly created Office of Financial Stability became law October 3, 2008, the result of an initial proposal that ultimately was passed by Congress as H.R. 1424, enacting the Emergency Economic Stabilization Act of 2008 and several other acts"

Not only was it in place before Obama raised his hand to take the oath, it was before the ELECTION. Geithner was handed a playbook from Hank Paulson - the very things that your post jumps on Geithner for was already in place by the time he was appointed.

Now, if you want to attack him on the way the stimulus was handled, I'm with you...

by MedfordTim on 11/24/2009 01:03:29 PM EST

ummm... (none / 0)

I am 100% with sterno that the Obama Administration (including Geithner) deserve blame on not doing enough to reform and regulate now, but not how they handled the bailout necessarily. 

So I'm much less inclined to believe that Geithner should lose his job.  But somebody has to point out Geithner was the president of the Federal Reserve Bank of New York in 2008.  That means he was sitting at Bernake's right hand during the crisis.  To say that TARP was simply handed to him by Paulson and the previous administration is laughable. 

by publius on 11/24/2009 04:01:49 PM EST

[ Parent ]
Since you put it that way... (none / 0)
"Laughable" or not, it remains a fact. There was no "Obama Administration" until the end of January. By then, the deals had been struck and the money given out.

Anyone who wants to say the whole thing was handled stupidly from a non-investment class point of view, I'm right there with ya.

I have no problem saying Geithner and Summers should go because I never thought they should be there in the first place - and they can take Rahm and Gates with them.

However, one MUST remember that it is CONGRESS who "deserve(s) blame on not doing enough to reform and regulate now."

That IS their job, you know. I, for one, do not WANT Obama issuing edicts beyond the scope of his office the way Bush did (to use the most recent example. I am well aware that other Presidents of both parties have abused this as well). I want Congress to be held responsible for the CRAP they keep passing with little to no accountability. Some of the names have changed since last October, but that appears to be the only REAL difference.

I cannot blame Obama for not putting rules in place, but I can bitch at him for not expressing a clear plan showing he's not dependent on former Sacks of Goldman employees. As we have seen with the "health care reform," if he doesn't present a coherent plan, Congress will muck it up until it is unrecognizable as "reform" and will mostly cover Wall Street's assets.

by MedfordTim on 11/24/2009 04:31:36 PM EST

[ Parent ]
We're on the same page MedfordTim... (none / 0)
I just wanted to point out that is wasn't like Geithner stepped in and was like "wow, what's this TARP thing?" 

by publius on 11/24/2009 05:00:02 PM EST

[ Parent ]
No problems (none / 0)
Just filling in blank spots.

by MedfordTim on 11/24/2009 05:09:14 PM EST

[ Parent ]
Knocking Down The Biggest Excuse For The Bailout | 6 comments (6 topical, 0 hidden)
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