By Mike Marsh
The financial industry is abusing the taxpayers via the TARP program, and the current regulatory system is not stopping them. We are throwing enormous sums at the industry, and asking them to use the money wisely. They won't. We need to understand that the guys running our nation's big financial companies by-and-large are simply not to be trusted. They are not interested in helping our country. Hell, they are not particularly interested in helping their own shareholders. They are concerned with their own personal interests, pure and simple. We need to treat these folks as the miscreants they are. Don't trust them to do the right thing. They won't. Don't expect them to act honestly and with integrity. It is foreign to their nature. Financial regulators should accept these simple facts and redesign our regulatory system accordingly. And there is no time to waste.
The latest case in point: Merrill Lynch's CEO John Thain. Merrill just got absorbed by the Bank of America, in large part through the efforts of you and I, who gave B of A $20 billion to make this happen. B of A demanded this additional money after they announced that Merrill had an "unanticipated" $15 billion of new losses in the 4th quarter, and this was going to kill the deal. Did I mention that "we" also agreed to share in any losses that Bank of America has on $118 billion in Merrill debt?
So what does this have to do with John Thain? He was the CEO of Merrill for about one year, during which time the company lost $30 billion and was saved from well-deserved bankruptcy only because the Feds arranged the company's takeover at our expense. That didn't stop Mr. Thain from spending $1.2 million redecorating his office. It didn't stop him from demanding a $40 million bonus for all his hard work, but when everyone from the Pope to Paris Hilton screamed about this, he backed down. When the world stopped paying attention, he secretly accelerated an end-of-year bonus to Merrill's senior executives, including himself. His share of the loot is $15 million. For losing $30 billion. Who knows how big a bonus he would have arranged for himself if he made a profit? I don't think there is enough money in the world that would have satisfied him. Oh, and he resigned/was fired from his new company today, as soon as his bonus check cleared the bank.
Mr. Thain is only the most recent example of self-dealing and double-dealing in the executive suites of America’s financial companies. These people have literally made hundreds of millions while losing hundreds of billions. They have misled their shareholders and debtors. They have led this country into its worst economic crisis in our lifetime. And they walk off with millions while we get stuck with the bill.
Mr. Thain and the rest of these clowns are able to get away with their shenanigans because you and I have given them $350 billion (so far) from the $700 billion TARP program. The original TARP plan was a mess. It was literally written in the space of 24 hours, and said essentially that the Sect'y of the Treasury would be given $700 billion, could do pretty much anything he deemed reasonable with it, and couldn't be held accountable. And it was such an emergency, Congress had to act in a couple of days or Armageddon would occur, so there was no time to figure out a good plan. The whole process is symptomatic of the general unseriousness of the previous administration. Congress spent a few days changing the plan at the margins, but its essence remained.
We have spent half the TARP money so far and have essentially nothing to show for it. The financial system is still not working. Foreclosure rates are increasing, and the economy is spinning out of control. Banks are under no obligation to loan the money, so the CEOs instead have been restoring their balance sheets and making acquisitions. And giving themselves un-earned bonuses, of course. So what have we got for our $350 billion? Here is a report from the folks in charge of oversight on TARP:
"There's just no money that's gone to support the housing market by avoiding preventable foreclosures. This one's not even arguable. The TARP funds themselves have not been used in this way despite congressional statutes requiring them to do so."
"For Treasury to take no steps to use any of this money to alleviate the foreclosure crisis raises questions about whether Treasury has complied with Congress's intent that Treasury develop a 'plan that seeks to maximize assistance for homeowners,'" the panel said in the report. The Treasury has failed to reveal its strategy for stabilizing the financial system and had done little to track how the money was used.
The panel cited "significant gaps in Treasury's monitoring of the use of taxpayer money," including asking financial institutions to account for what they have done with taxpayer funds.
I am amazed that more people are not apoplectic about this. Maybe it’s because the sheer size is too big to grasp. the $350 billion we have spent is an enormous some of money to fritter away. We are going to have to pay it back, with interest. Think what could have been if we were smarter. Expanding SCHIP to give millions of uninsured kids healthcare went down in 2007 over a few billion. We could revitalize our rail system for a small fraction of this. What could we do for education for the next generation with a tenth of this amount? For readers of a more conservative persuasion, this is money that would have remained in the hands of the taxpayers to be invested more intelligently. Now it is gone, and we have little if anything to show for it.
Our ability to throw money at this problem is not unlimited. Before we spend another $350 billion, we need to change the rules. What do we want the banks to do with the money? Whatever it is, make them do it, don't just depend on their good will or common sense to do it because they have neither good will nor common sense. And for God's sake, any bank that takes our money cannot be allowed to give its executives bonuses. That is a sure way to destroy the new administrations credibility and the people's faith.
President Obama and Congress need to change the rules before another dollar is given to these companies. Obama ought to be slamming on the brakes until we have a plan that makes sense. Otherwise he'll be regretting the $350 billion that got away when he has to explain why worthy projects can't be done because we can't afford it, or tax cuts have to be limited because we need to pay back our creditors.