Paulson went out of his way to do this. No accountability. No scrutiny. Just slather hundreds of billions of taxpayers' dollars to ALL the major banks. I remember thinking it odd at the time that some banks did not WANT any TARP money, but Paulson forced them to take it. Now it all makes sense. It was the only way to keep secret the identities of which banks were on the verge of insolvency.
This is a snippet from December about it:
Spooked and InsolventBy Kevin Drum
Mother JonesDecember 22, 2008
Atrios sez:
Even now my interpretation is that the Wise Men Of Washington who are "dealing" with this financial crisis believe they are dealing with a liquidity crisis rather than an insolvency one. They think that big shitpile is actually worth something, but that "financial actors" are "spooked." They think that if banks aren't lending it's because they have temporary capital issues because of this, instead of the fact that maybe banks aren't lending because recession is here and it's not the most awesome time to lend money for projects.
But why can't it be both? In the previous post I said
it was a bad idea for Henry Paulson to bail out all the big banks instead of reserving funds only for those banks that were genuinely close to insolvency, and this is one of the reasons. Not only did a lot of money get wasted on banks that didn't want it, but it prevented us from finding out which banks were in trouble and which ones weren't. If, say, a quarter of the banking industry is insolvent, but nobody knows which quarter, than we have both an insolvency problem and a "spooked financial actors" problem. Sweden solved both these problems in the early 90s by taking over the banking industry completely, but in their case it was really true that virtually every bank was underwater. In our case, it's not(1), and we ought to be spending more time figuring out which banks are viable entities and which ones aren't. The ones that aren't can be bailed out or nationalized if there's some prospect of future recovery, and the rest can be left alone. Result: we still have a big recession, but at least the solvent banks aren't under the same cloud of suspicion as everyone else and can go about their business semi-normally.
(1)Well, I don't think so, anyway. I could be wrong, though!
When Geithner started talking about involuntary "stress tests" for (especially the major) banks, Wall Street freaked out over this prospect of public exposure of exactly how Paulson tried his best to hide them from scrutiny. By examining individual banks, we will soon learn which ones are teetering on insolvency. Then we will have a reason to nationalize those, fire all the management and pony up for all depositors. The banks that are not having problems should be left alone.
Krugman is on it.Aha — the Times’s
dealbook blog supplies exactly the numbers I was looking for. It cites a CreditSights report on the potential losses of major banks — which gives us a guide to the amount of capital the federal government needs to put in to make these banks viable.
Focus just on the big four money center banks: Citi, B of A, Wells Fargo, JPMorgan. According to this estimate, they need around $450 billion. Meanwhile, their combined
market cap is only about $200 billion — and part if not all of that market cap surely represents the “Geithner put,” the hope that stockholders will in effect get a handout from the feds.
Given these numbers, it’s extremely hard to rescue these banks without either (a) giving a HUGE handout to current stockholders or (b) effectively taking ownership on the part of we, the people. Of these, (a) would be politically unacceptable as well as bad policy — but the Obama administration isn’t ready to go for (b), because it’s not in our “culture”.
Hence the perplexity of policy. Our best hope right now is that the “stress test” will make (b) inevitable — that Treasury will declare itself shocked, shocked to find that the banks are in such bad financial shape, leaving government receivership unavoidable.
The bottom line for me is that the people who ran these banks into the ground should be forced out, indicted for fraud, and their banks nationalized. Period.
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