Posted by: Doug Henwood | February 9, 2009

Rant on the TARP overhaul

Tomorrow will bring the unveiling of the Obama administration’s overhaul of the Henry “Hank” Paulson bank bailout, the Troubled Asset Relief Program (TARP). [Apply for funds here.] From the leaks emerging, it looks like a significant portion of the scheme will amount to this: the government will lend money to hedge funds and the like at subsidized rates to buy toxic assets from banks – and the gov will guarantee the investors against losses. Evidently, the administration thinks the toxic assets are being underpriced by the markets. If they’re right, the buyers will make money. If they’re wrong, then we all pay.

From the hedgies point of view, it’s all reward, no risk. Even if the rewards don’t materialize, what have the hedge funds lost? What the public gets out of this is impossible to specify, aside from the risk of massive losses. 

I hope this isn’t really what will emerge. But if it is, the Obama administration will have broken new ground in awfulness. The same formula that brought us this mess, an indulgent government encouraging reckless operators playing with other people’s money, will be applied towards solving it. It makes no damned sense.

Well, maybe it does in the most cynical way. Hedge funders like Chicago’s Kenneth Griffin wrote Obama big checks during the campaign season. (For some details, see here and here.) Obama’s top economic advisor, Larry Summers, worked for a hedge fund (D.E. Shaw) after he got fired from Harvard. And no doubt Treasury Secretary Tim Geithner would like a multimillion dollar job on Wall Street after he leaves public service, just like Robert Rubin got at Citigroup after engineering the repeal of Glass-Steagall.

Can things really be this bad? We report; you decide.

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Responses

  1. Looking more like these guys every day:

    http://www.andyfoulds.co.uk/amusement/economists.htm

  2. Thanks for the link Max, I just wasted a half an hour of work playing that game.

    Hopefully Obama will regulate hedge funds. The 500k cap is purely symbolic, but business is still mad because it’s symbolic.

  3. Doug, I could not agree with you more. That being said, I do believe in the Auto funding because it has so much to do about the common man wage; suppliers who will be forced to close because of unpaid bills forgiven under chapter 11 laws protected from the big three.

    These are the companies who build the parts. Small companies who are suffering at the hands of the foolish decisions by Ford, GM and Chrysler. As we sit in Manhattan, so concerned about the spoiled brats working for banks, the “Rust Belt” is vastly turning into the “gangrene belt”. Say goodnight to Cleveland, Toledo, Pittsburgh, Buffalo, Chicago, Flint, Detroit (clearly) etc…

    I know I am sounding like Michael Moore but those cities are the true fabric of American industrial employment. Without TARP, the middle of the country will go bust!

    Yes, GM and Ford made some foolish mistakes; giving up on NGVs due to lack of distribution of Natural Gas (“If you build it they will come”). Yes they all stocked up on high consuming SUV’s and saw very little foresight in the price of gas, yes, they signed a deal with no end in sight of the cost of healthcare for retired employees (though they appear to be living up to it, so kudos to them).

    It is the “little companies” who will suffer the most. The supply chain, the dealers (found in every small town in the country, the media companies which allow us to rant and rave)…

    I wrote and wrote four years ago about the pending credit issue; sub prime, two years ago about the credit card crisis, people within my company laughed at me, calling me an alarmist! In the words of David Byrne, “They are not laughing anymore”.

    Wall Street is simply suffering from a post Ansonia/Plato’s Retreat hangover… I watched these jerks trample through my neighborhood. Pricing life long residents out of their homes, putting up the big bucks for homes, restaurants, fancy stores. Contructing condo buildings made of glass, paying no attention or regard to the history of the West Village! Bitter? yes! Mad? Indeed. They made their money at the hands of the working class. Time for redemption, in my eyes…

    I am saving this blog on my favorite list… I respect your opinions, always have!

    That all lifted off my chest, say hi to Ivan and Liza! I miss you guys!

    My rant is over…

  4. It’s often said that big contributions to public officials buy “access.” What are President Obama’s priorities when it comes to granting access? The President’s email addresses for his Blackberry help answer the question.

    – – –

    Psst: Wanna buy Barack Obama’s email address?

    By Peter Scheer
    California First Amendment Coalition, January 28, 2009

    I am now in possession of the Chief Executive’s new, private email address, the one reserved for family members and close personal friends. (Two additional email addresses have been created for use by, respectively, Cabinet level officials and campaign supporters who contributed $200,000 and above.)

    http://www.cfac.org/content/index.php/cfac-news/propositions/

    ————–

    I submitted the above as a comment on a Truthdig story about the danger of the lobbyists. The moderator(s) blocked it.

  5. Would such a plan at least get bad debt off the bank’s books so maybe they aren’t insolvent any more? Or am I deluded?

    Several months banks a Brit investment banker who was old enough and rich enough not to care what people thought said, “No one has experience with failure at this level. No one.”

    PS Did you see this.

    “U.N. crime chief says drug money flowed into banks”

    http://www.iht.com/articles/reuters/2009/01/25/europe/OUKWD-UK-FINANCIAL-UN-DRUGS.php

  6. […] Rant on the TARP overhaul « LBO News from Doug Henwood via kwout addthis_url = ‘http%3A%2F%2FGlobalSociology.edublogs.org%2F2009%2F02%2F09%2Fdoug-henwood-has-a-blog%2F’; addthis_title = ‘Doug+Henwood+Has+a+Blog’; addthis_pub = ”; […]

  7. […] Henwood, in a fine rant, says the bank bailout announcement today might allow hedge funds to buy assets from the banks at […]

  8. Mr Henwood, Do you really like that snapshot feature in WordPress?

    Whenever our mouse points to some external link it will open a snapshot window.

    I mean, It is so clunky and so ridiculous. Lou Proyect had that feature. Now he has, thankfully turned off that feature.

  9. My apologies — I originally submitted the little note about Barack’s big contributor email to truthout.org not Truthdig.com, and truthout blocked it.

  10. You’re right – the snapshot thing is annoying, and I’ve suppressed it brutally.

  11. I periodically see Larry Summers’ hedge fund, D.E. Shaw, advertising in the Chronicle of Higher Ed for “raw talent”. Who says there are no second acts in American life? Sell them on their need for someone who understands systemic risk the way only a Marxist can and start raking in the dough! Big TARP, big tent!


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