US bailouts failed to tackle reckless banks, says watchdog

[G_j]

http://www.guardian.co.uk/business/2010/jan/31/us-banking-industry-tarp



US bailouts failed to tackle reckless banks, says watchdog
• Neil Barofsky warns government risks housing bubble
• Troubled Asset Relief Program cost US taxpayers $700bn

Heather Stewart
guardian.co.uk, Sunday 31 January 2010 19.58 GMT



Washington's efforts to fix America's financial system have created a "heads I win, tails the government bails me out" mentality on Wall Street, according to a stinging report from the watchdog in charge of monitoring the government's bank rescues.
As President Obama prepares to unveil his Budget tomorrow, amid growing voter anger about the costs of the crash, Neil Barofsky, the Special Inspector General for the Troubled Asset Relief Program, used his quarterly report to Congress to rebuke politicians for failing to tackle deep-seated problems in America's financial system.

TARP was first announced by the then Treasury secretary Hank Paulson in autumn 2008, to stabilise the banking sector in the wake of Lehman Brothers' collapse. The Obama administration increased the size of the programme to $700bn and widened its scope from propping up failing banks, to boosting borrowing to small businesses and preventing mass foreclosures in the housing market.
In his report, Barofsky warns that while many of Wall Street's largest players bought their way out of the TARP last year, returning some of the government's funds, the financial system is no safer than at the height of the credit crunch.

"The substantial costs of TARP – in money, moral hazard effects on the market, and government credibility – will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, five or even ten years time," he says.

Barofsky says none of Wall Street's deep-seated faults, from excessive bonuses, to the "heads I win; tails, the government will bail me out" mentality of the big banks, have yet been tackled.

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same mountain road, but this time in a faster car," he said.

His warning about "moral hazard" echoes the concerns of Bank of England governor Mervyn King about the multibillion- pound bailouts of Britain's financial sector – that bankers would be left believing even if they brought the financial system crashing down around them, the government would be ready to step in.

..more..

[FreakinDJ]

1. No Kidding - they used TARP funds to speculate on the market

and leverage mergers

No wonder they arn't able to make loans to small business

[truedelphi]

4. Sadly, I think this is all planned.

It is the biggest coup of the history of nations. A huge transfer of wealth from the middle incomed to the upper one percent.

We had a solid democracy and then it happened in the eighties: the very managed spread of BS doctrines like the RW's careful perversion of Milton Friedman's Supply side markets' theory.

This new doctrine was viewed as being infallible and became the tool that put American jobs over seas. (Why keep jobs here if the main principle of economics becomes 'Jobs are not important - low prices on goods overrides that.'??)

Then Greenspan was utilized by both Bush the Elder, the Clinton Administration, and Bush Junior to nudge our economy into being totally dependent on created bubbles.

The housing bubble was created via Greenspan/Paulson insistence on low interest rates. Jobs at that point no longer were in abundance - but hey - everyone in the nation was being issued credit cards and if someone wanted a mortgage they got it. People were told "Don't worry - Just be happy."

And tackling the huge role that financial de-regulation and elimination of Glass Steagall would require another few paragraphs.

Now Bernanke/Geithner are just taking the economy again to the edge.

And sure, Geithner and Obama are now once again talking about the importance of instituting regulations.

But Obama has been talking about that since October 2008. And yet he never ends up doing any thing other than scolding the Banksters.

Although apparently, after the fourteen trillion has already been offered by Bernanke/Geithner to the Biggest Banksters, the WH is now working on a White Paper re: the financial mess.

[leftstreet]

5. Barn door, horse...

that sort of thing

Excellent summary.

:thumbsup:

[G_j]

6. still no regs

we won't hold our collective breath either.

[FreakinDJ]

7. The Housing Bubble was CREATED for 2 reasons

The Bush economy needed to finance the Debt brought on by 2 Tax Cuts which predominately benefited the Wealthy Elite Top 1% of this country. Those Tax Cuts were never financed through Federal Budget Cuts. Closer to the Truth the Bush Administration fully enabled by lock-step marching Monkeys in control of the House and Senate at the time, spent Tax Payer's Money like a bunch of Drunken Sailors

Additionally the Bush Tax Cut #1 opened a HUGE hole for Corporations to export jobs overseas which increased our Trade Deficits Exponentially.

Money was flowing OUT of the United States at an Alarming Pace - (enter stage right) "Mortgage Backed Securities". America had nothing left to sell so Wall St. with the full knowledge and approval of the Bush Administration, PIMPED Debt obligations written on the backs of Hard Working Middle Class Citizens.

Asian - Taiwan and China specifically was Leary and distrustful of Wall St Investments because of the Bush Administration's Mishandling of the Enron / WorldCom melt downs. BBC Asia Reports regularly aired a list of

Days since Enron Collapse
# of Enron Employees Arrested
# of Enron Employees Convicted

I saw it myself when visiting Asia in 2003 when ever BBC Asia Reports aired segments dealing with the American Economy

[truedelphi]

8. Very interesting. Thank you for your first person

Account as well as the nudge for us to remember the tax cuts that Bush had going.

Plus there ws that bit of a dive in Sept and Oct 2001, after the 9/11 eevent.

Greenspan cited that event as requiring him to keep the interest rates low.

[Edweird]

2. Hey, how 'bout those bonuses they got. Pretty sweet, huh? 1% of the GDP.

[truedelphi]

3. If Obama would just keep his appointee Neil B. and let all the other

Goldman Sachs suck ups go, it would be a better world for everyone.

And of course, we can clearly see the Corporate control over our Democratic majority Congress and Senate when good ol' Bernanke manages to be re-appointed!