Cynical Mind

[Lucky]

Given that only about 10% of the $787 billion dollars allocated for economic stimulus has been spent so far, am I too cynical for thinking that the hold-up is so the rest of the money can be stolen or otherwise allocated to the usual corporate pigs at the trough? Just asking.

[TampaYankee]

Given that only about 10% of the $787 billion dollars allocated for economic stimulus has been spent so far, am I too cynical for thinking that the hold-up is so the rest of the money can be stolen or otherwise allocated to the usual corporate pigs at the trough? Just asking.

My mom used to tell me on occasion: 'haste makes waste' and 'measure twice, cut once'.

One might take the diametrically opposed view that taking time to carefully evaluate all prospective projects may actually avoid waste, fraud and corruption in the process. Hard to know until we see the results.

[Guest Conway]

Considering how arbitrary and random the distribution of TARP was and how unsuccessful it has been, I'm grateful that this process is moving forward more judiciously. I used to think that the war in Iraq would be viewed as the greatest failure of GWB. I honestly believe that now TARP will hold that title.

[TampaYankee]

Considering how arbitrary and random the distribution of TARP was and how unsuccessful it has been, I'm grateful that this process is moving forward more judiciously. I used to think that the war in Iraq would be viewed as the greatest failure of GWB. I honestly believe that now TARP will hold that title.

We will never know is how successful TARP has been or ever will be. It is easy enough to catalog its failings and they are manifest. What we will never know is to what extent it managed to forestall a disasterous crisis in confidence that would have generated wholesale runs on banks and sucked the remainder of the economy down the same black hole that swallowed Bear Stearns and AIG. If it did that then it was worth every penny. However, there is no way we can ever 'know' what would have been without it. We are where we are. It is hard to argue, it seems to me, that we definitely would have been better off without it.

The success of TARP, it can be argued, lies more in the fact that it showed convincingly that the government was willing to take unprecedented action to intervene in the crisis rather than let it drift on its own or to make a less than convincing case that it would do whatever is necessary.

It seems to me the Monday morning quaterback discussion is limited to how TARP funds could have been better targeted or better dispensed and tracked or, for the survivial of the fittest crowd, the overriding long-term benefits of sacrificing large segments of the economy and population to economic death and dismemberment over a multiyear economic down turn.

[MsGuy]

Warren Buffet, who has never been called an alarmist, recently stated that last fall we were "staring into the abyss." His take is that, however many costly mistakes were made in the process, it was critical that both the Fed. and Treasury acted immediately and forcefully to prevent the finantial system from going into a death spiral. According to Buffet, it was a close run thing.

So T.Y. appears to be in good company. Just shows that great minds think alike.

[Guest Conway]

I guess that I should clarify.

I'm not opposed to the idea of assistance to save the financial system. No one has to look any farther than the cases of the Bear Stearns or Wachovia collpases to realize how fragile the system was in the fourth quarter of last year. Both of those institutions failed due to liquidity runs rather than under the weight of their bad lending and investment decisions.

My opposition was to the fact that the administration strong armed institutions that didn't need the assistance to take it in the name of "doing what is right for America".

Then, it used that leverage to force at least one very healthy institution, Bank of America, to enter into a very risky transaction to buy a failing investment bank with only a few days to perform due diligence in consideration of that very complex transaction. The combination of those events took BOA from the position of being one of the healthier banks in the nation with very little aggregate exposure to the mortgage market crisis to one of the least healthy banks in the nation.

It cost the taxpayer another $25MM in additional assistance once the losses associated with Merrill's trading units came to light. There may be a good chance that it could cost the taxpayer up top another $35MM to stabilize the once stable BOA.

In short, by forcing BOA into accepting $45MM in TARP money that it didn't need, it may cost the taxpayer somewhere in the area of $100MM to keep BOA afloat. Eventually, we will see the government forcing its hand in day to day BOA business matters such as the election of board members much like it is doing with Chrysler.

These quasi-governmental business entities are going to become nothing more that second rate competitors in the marketplace that exist for the purpose of promoting the political patronage of whatever party is in charge.

Now that the immediate liquidity crisis that faced banks has passed, Secretary Geithner's inability to come up with and institute a plan as to how to use the remaining TARP funds to put banks in a position to lend again doesn't give me much pause to believe that the current administration has a much better idea of how to address the crisis as it currently exists.

It seems to me that the current administration is clearly willing to allow the current scenario in which banks must restrict cash to reserve for the additional potential losses in real estate portfolios as a justification for having the government become a shareholder in those banks. Returning those banks that are capable to good health and allowing the taxpayer assistance to be repaid by those that can seems secondary to the concept of leveraging the governments ownership of those institutions for political gain.

We currently have the ability to fence off those toxic assets via the remaining TARP funds and we have a proven framework (from the old RTC model ) that has worked very well in selling assets and recovering a portion of the taxpayers investment and returning it to the treasury. but, that model only works if there is financing available to fund the acquisition of those assets by third parties.

Its a classic catch .22. Banks cannot lend because they have to continue to reserve for future real estate losses. Toxic assets can't be sold because banks won't lend to fund their acquisition (at a discount) because of their concerns over their own future liquidity needs. Secretary Geithner won't implement a bad bank model because the administration fears the political repercussions of potentially mispricing the acquisition of those assets by the government funded bad bank. And finally, the administration seems hell bent using this crisis to develop on a socialistic "partnership" between government and industry to promote its own social agenda through these companies.

Christ. It makes one consider moving to France.

[Guest StuCotts]

am I too cynical?

Yes.

[Lucky]

Yes.

Okay, granted. But no one will claim that a significant amount of these funds, and an even higher amount of the TARP funds, will be stolen. They may not be delaying the expenditure of Obama's money to steal it, but they will ultimately find a lot of it going where it shouldn't have gone.

[TampaYankee]

Christ. It makes one consider moving to France.

lol... that bad huh?

Thanks for providing the thoughtful follow up. I enjoyed reading the elaboration of your views. Some food for thought.

I cannot comment on many of your specifics as you are clearly more intimately knowledgable with the details than I. I will say that I am uncertain with some of Geitner's decisions/plans as I understand them. I tend to favor the old RTC approach in the best of all worlds but as you point out, liquidity is an issue.

I also favor a more agressive approach to breaking up the banks along more traditional lines where banks are banks, not insurance companies or investment houses. The Age of Too Big To Fail should be history. I fear he is too invested in the current business architecture to take the meat axe to it that it needs, feeling this baby need not be thrown out with the bathwater.

[Guest Conway]

Sorry, all of those MMs (millions) I reference in the BOA discussion should be billions.