Will Paulson Spend The Full $700 billion TARP?
Screaming "systemic failure, systemic failure" Paulson ran to congress to ask for lots of money to bail out his friends. He got $350 billion with no strings attached and a promise of $350 billion more, if needed.
The Democrats expected that the first tranche would be sufficient until a new administration steps in and directs a better program. But Lucy Paulson is now pulling that ball away.
Of the $350 billion $290 billion are already committed for unconditioned capital injection into big banks. Like most of the money spend so far, the latest bailout for A.I.G. is really a bailout for Paulson's old company Goldman Sachs, for JP Morgan and other biggies which would take losses should A.I.G. go down. American Express just changed itself into a bank to be also entitled to taxpayer money. What is the systemic importance of Amex? Zero. But that seems not to matter anymore. Whoever asks for money, and has the right friends, is getting it.
Lots of other folks stand in line and wait for their turn on the trough:
The lobbying frenzy worries many traditional bankers — the original targets of the rescue program — who fear that it could blur, or even undermine, the government’s effort to stabilize the financial system after its worst crisis since the 1930s.
Among the most rattled are community bankers.
“By the time they get to the community banks, there may not be enough money left,” said Edward L. Yingling, the president of the American Bankers Association. “The marketplace is looking at this so rapidly that those who have the money first may have some advantage.”
Those who came first certainly have an advantage. That was the reason why Paulson pushed the first big giveaway to only a few big banks. For an investment banker like Paulson, community banks are competition and competition is by definition bad. The big companies that get Fed financing and gifts from the Treasury can refinance themselves much cheaper now and will, over time, push all smaller players out of the markets.
While those who got called first hauled away huge sums of unconditioned money, the Treasury is now planing to attach conditions to further capital injections. Too bad if those community banks will not be able to meet these and will have to sell themselves for pennies by the big ones. Paulson is orchestrating the oligarchization of the U.S. financial system.
But back to the $350 billion. The three bankrupt car-makers in Detroit are asking for a big gift that would them allow to survive another six month. For political reasons, the Democrats want to give it to them and, if possible, through the TARP program which was marketed as an emergency fond to prevent a systemic financial crisis.
With the auto companies reeling and Mr. Bush sending no signal that he would act, Ms. Pelosi said she had asked Representative Barney Frank, Democrat of Massachusetts and chairman of the Financial Services Committee, to begin drafting legislation directing that part of the $700 billion bailout be used to help the automakers.
Now here is my prediction. Paulson will spend full TARP.
As the first tranche of the $700 billion is nearly gone, the Treasury will tell Congress that help to Detroit through the TARP program can only be given if Congress immediately and unconditionally hands over the full second tranche. Of those $350 billion maybe $50 billion will then be handed to Detroit and on January 21 a new administration will discover that Paulson has given the rest down to the last dollar to his friends.
Why would he not do so?
Posted by b on November 12, 2008 at 14:58 UTC | Permalink
Instead, we are, bounded by permissible intellectual discourse, permitted to argue over what Obama will deliver to us, because "he appears to be a reasonable human being."
On sufferance...
re bankers, was there ever the slightest doubt that they would pocket the lot? Of course there wasn't. The hand-wringing, such as it is, is a morality play put on for our benefit, and it's about as convincing as Pope Alexander VI saying mass. In fact the Borgias would have loved our age.
Posted by: | Nov 12 2008 18:20 utc | 2
One cannot take a first step in the modern world without the guidance of Orwell.
Great point. It seems as if it's almost by design. As if the social engineers said, "let's use the methods described by Orwell in 1984." AMEX, once symbolizing equity, or excess savings and capital to be reinvested, now represents Debts...which can never be repaid, except with your soul. Also, remember when it was referred to as Debt, with a negative stigma attached to it, but now it's referred to positively as Credit? Euphemisms everywhere. Orwell would be proud....and forlorn.
I frequently visit a blog that discusses the financial news of the day, and I can tell you that I am disgusted by the day traders there who are making gains on the demise and misfortune of so many. To me, they are every bit as loathsome as the swindlers on Wall Street, the whores and pimps inside the Beltway, and the vampires managing the dungeons of Corporate America. They're all feeding, and gorging themselves on this mythical Beast. I have no skin in that game. I have purposely refrained from dabbling in the stock market for moral and ethical reasons. Any gain is at the expense of humanity. There is no way around that. It's how the system works, and I donn't want to contribute to it when I have a choice.
Posted by: Obamageddon | Nov 12 2008 18:23 utc | 4
A pre-emptive pardon for Paulson is unnecessary, as he already provided for immunity from review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Posted by: PeeDee | Nov 12 2008 19:39 utc | 6
Has the irony escaped anyone that Paulson announced a change in plans almost upon the 90th anniversary of Armistice? Like the generals at the Somme, he asked for unlimited resources without having the faintest idea of exactly how the plan would proceed.
And like the generals at the Somme, his resources will be spent for nothing. And he will be decorated and write his memoirs without having been called to account for anything.
Posted by: Obelix | Nov 12 2008 20:52 utc | 7
Bush is a shadow. Cheney is hiding in a cave or hospital somewhere. Obama is closeted with the Clintonites. Maybe Hank has spent more, much more (?), than what was officially available at the till, and is juggling balls to avoid....
The End by Michael Lewis  Nov 11 2008
The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in “Liar’s Poker”, returns to his old haunt to figure out what went wrong.
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom> Portfoliocom, 9 pages
Posted by: Tangerine | Nov 12 2008 21:17 utc | 8
No, Obelix, the irony didn't escape me. I tend to think about the Somme a lot this time of year as my grandfather fought in the battles there.
Not so much Paulson, though, as the genuinely awful fact that whatever else those men were slaughtered for, they did honestly believe, when it was all over, that they had brought an end to war. And a great many of them were fighting to defeat an enemy they held guilty of murdering Belgian civilians. I don't want to guess what my grandfather would make of the supreme irony of a world where wars are fought mostly against women and children.
Posted by: Tantalus | Nov 12 2008 21:31 utc | 9
Can someone explain to me why the Federal Deposit Insurance Corp, founded to keep small savors whole in case of bank defaults, would guarantee GE Capital debt?
GE Wins FDIC Insurance for Up to $139 Billion in Debt
General Electric Co. said the U.S. government agreed to insure as much as $139 billion in debt for lending arm GE Capital Corp., the second time in a month it has turned to a federal program designed to help companies during a global credit crunch.Granting GE Capital, which isn’t a bank, access to a new Federal Deposit Insurance Corp. program may reassure investors and help the unit compete with banks that already have government protection behind their debt, said Russell Wilkerson, a spokesman for the Fairfield, Connecticut-based company. Coverage would be for about $139 billion, or 125 percent of total senior unsecured debt outstanding as of Sept. 30 and maturing by June 30.
This is totally nuts and will fall back on all small account holders and in the end tax payers.
GE Capital, which carries the highest-possible AAA credit rating, includes divisions that are among the world’s largest lenders in commercial real estate, aircraft leasing and private- label credit cards.All those divisions are certain losers in this recession. The AAA rating is a joke.
GE is already among companies using a new short-term funding facility from the Federal Reserve opened to revive demand for commercial paper, the short-term borrowing that companies use to finance day-to-day operations. GE and its finance entities, top- rated issuers, had issued paper without interruption before tapping the facility.Nice propaganda written for GE.
It has long term obligations financed with short term borrowing. A business model that is dead for now.
Granting GE Capital, which isn’t a bank, access to a new Federal Deposit Insurance Corp. program may reassure investors
I'm a dunce at economics, but isn't this all about shareholders? Now that these companies can no longer service their shareholders to the exclusion of all else, and to the detriment of the economy as a whole, the government is stepping in to service the shareholders for them. Essentially the government is plucking the maggots from the corpse of GE and battening them onto the taxpayers. Economic necrotization.
Posted by: Tantalus | Nov 12 2008 22:18 utc | 11
That's exactly what it is, Tantalus. Of course, the excuse is to save the jobs. As if they give a rat's ass about that.
Not to worry, though. The O Team is going to turn this thing around.
Posted by: Obamageddon | Nov 12 2008 22:49 utc | 12
Yves Smith of naked capitalism writes,
"...it looks as if the AIG treatment is, again, all about special dealing on behalf of Goldman. Recall that Goldman CEO Lloyd Blankfein was the only Wall Street executive invited in to work with Paulson on the terms of the original rescue. These guys are completely shameless, and for good reason. There are no repercussions from this sort of cronyism, not even recrimination in the media."
[Plus it's pretty damn obvious to me that Paulson is adding sweetener to AIG to sweeten Goldman. So at his next news conference, Paulson's podium sign should read "Goldman First."]
Posted by: Cynthia | Nov 12 2008 23:11 utc | 13
It seems really strange to me that Americans and the government have trusted Paulsen to solve the problem that he helped create. Now it would appear that he is looking at these financial institutions and trying to figure out what the right answer to their problem is and how he can help them while making it look like he's helping the average American - I, for one, don't buy it. Henry Paulsen can't fix America and with his recent chicken little approach to trying to help he's not even sending a message of hope. Frankly, it's quite the opposite, he's making it obvious that he doesn't have the answers and can't resolve the problems. We can only hope that whomever comes next will have a better idea of how to solve the ills of the markets.
Ranter
Hank read, "If you give a mouse a cookie"
It's a children's book and it might help!
Posted by: Jason | Nov 13 2008 1:15 utc | 15
peedee,
the treasury secretary can still be removed by congress. And, that might not be a bad idea.
Posted by: jdp | Nov 13 2008 2:42 utc | 16
The current occupant of the White House, however, has sedulously prepared for his successor the biggest shit sandwich the world has ever seen, and there is naturally some concern that Mr. Obama might choke on it. The dilemma is essentially this: the consumer economy we all knew and loved has died. There will be pressure from nearly every quarter to keep it hooked up to the costly life support machines even though it is dead. A different economy is waiting to be born, but it is nothing like the one that has died. The economy-to-come is one of rigor and austerity. It is not the kind of thing that a nation of overfed clowns is used to. Do we even have a prayer of getting to it, or are we going to squander our dwindling resources on life support for something that is already dead?
...Personally, I believe the age of Happy Motoring is over. Many Americans have already bought their last car -- they just don't know it yet.
...Even the progressive factions of the public may be in for much more "change" than they bargained for. The global economy as we knew it is finished (despite British PM Gordon Brown's fatuous suggestion that we are ready to formalize it). The world is about to lose its "flatness" (sorry Tom Friedman) and get much rounder.
...For the moment, the Chinese are struggling with epic factory closures with the sudden prospect of a restive lumpenproletariet. The situation there is bound to get worse.
...Industrial farming is done, just as suburbia is toast. Mr. Obama will have to apply plenty of ass-time to the first stages of negotiating this bottleneck.
...One thing we can certainly predict is that growing our food will require more human labor and attention -- meaning there will be plenty of work for people currently losing their jobs at The Footlocker and Arby's, but it's far from certain whether they will be happy in their new vocations.
... We're going to have to resume making things in the USA again, too, probably at a more modest scale, and probably fewer things than we are used to.
... In the months just ahead, Mr. Obama will certainly be swamped with straight-ahead cash problems in every area of American life, from the foundering pension funds to the bankrupt state treasuries to the beggaring corporations to the starkly dispossessed and hungry masses of the jobless and re-poed.
...Of course, the current president -- and Mr. Obama has been shrewd to point out there is only one president in office at a time --has more than two months to wreak additional havoc in the financial system. Right now, he's asking Mr. O, "...do you want fries with that sandwich I made for you?"
Posted by: vbo | Nov 13 2008 10:35 utc | 17
The comments to this entry are closed.
For my entire life "Amex" was the moniker attached to the American Stock Exchange, which, after falling into the International Financial Memory Hole, appears to have now become the moniker for American Express.
One cannot take a first step in the modern world without the guidance of Orwell. Just as the "War in Iraq" was not a war -- the Iraqis never went to war with the US/coalition -- but an invasion -- illegal and one-sided; so too, the "Financial Crisis" is more accurately termed the "Designed Concentration of Wealth and Finance under shock-doctrine conditions."
The amount of time NPR appropriated to arguing about the "Gas Tax" when petroleum was engineered to spike at $147/B dwarfs any discussion of where $3000/family will go while the public sways to the rhythms of the Obama Macarena.
If the average family makes $40K and pays 12-16K in taxes(in toto), would it not be reasonable that, in a Democracy, said average family would understand where his 12-16K in taxes went to and would have a voice in the appropriation of another 3K (8% of income)?
If we lived in a functional Democracy I believe that the answer would be yes. Instead, we are, bounded by permissible intellectual discourse, permitted to argue over what Obama will deliver to us, because "he appears to be a reasonable human being."
Great reporting, b. The artifice of tranche recapitulates the actuality of voracious Tyrannosaurus bite.
Posted by: Malooga | Nov 12 2008 16:10 utc | 1