Tuesday, April 21, 2009

The new Godfather: Don Geithner


As the mortician learned right at the beginning of The Godfather, once you take a favor from the Godfather, you are eternally in his debt. The same is apparently true of TARP money and former tax cheat, current Treasury Secretary Geithner. News is out this morning that the government is deciding whether or not to allow banks to pay back their TARP money.

WASHINGTON -- Treasury Secretary Timothy Geithner indicated that the health of individual banks won't be the sole criterion for whether financial firms will be allowed to repay bailout funds, a position that might complicate their efforts to give back the cash.

Notice that it is not going to be depending on the financial health of the bank. That makes a ton of sense. So even if your bank is healthy, the government may not allow you to pay back your loans? They want to repay their loans and are not being permitted to do so! Makes you not so confident of the taxpayers ever seeing a nickel of the loan money that went to GM and Chrysler being repaid.

Here is the dirty secret of this whole mess: the government doesn’t want the banks to pay back the TARP money. It was sold to the citizens of this nation as a temporary fix, we would give the banks some liquidity and they would start lending again. We would get paid back with interest and everyone wins. As I suspected, that is not how it worked out. Obama got elected and a new regime took over and the TARP money went from kick starting the economy to giving the Feds control over the banking system. Having the banks indebted to the government gives the government control over them, which is the ultimate goal. As the healthy banks pay back the TARP funds they didn’t really want in the first place, the Federal government loses a big control mechanism they have in place. That control allows them to dictate lending terms, executive pay, board members, senior management (see: Wagoner, Rick). So to keep them under the thumb of the Feds, now we are not going to let these banks pay back their loans. Brilliant!

The news is also filtering out that the government is exploring trading the debt positions of these banks into equity positions. From the New York Times:

WASHINGTON — President Obama’s top economic advisers have determined that they can shore up the nation’s banking system without having to ask Congress for more money any time soon, according to administration officials.

In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.


For most people that doesn’t mean much, but equity in a bank equals stock which equals ownership. It is a sneaky way to nationalize the banks without calling it nationalization. The banks never have to repay the “loans” they got through TARP and the government starts to have de facto ownership in a number of banks. Banks owned by the government will have no incentive to be competitive and like national health insurance, eventually the end result will be to drive out the private insurers and banks. Private companies cannot compete with government owned banks and insurers that never have to show a profit because they are funded by a never ending supply of tax revenue and national debt.

Meanwhile, we have the shadowy and confusing “toxic assets” bailout plan moving forward, fueled by your money:

Still, Inspector General Neil Barofksy, using blunt language, offered a series of recommendations to protect the public and took the Treasury to task for not implementing previous advice.

Overall, the report said the public-private partnership -- using Treasury, Federal Reserve and private investor money -- could total $2 trillion. "The sheer size of the program ... is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives," the report stated.


Now that is a quote to warm your heart. We are taking enormous risks to the tune of $2,000,000,000,000 and the private investors get all of the reward. Now that is a partnership you can get behind! Even still, you find that few financial firms even qualify to invest in the program and even fewer are jumping on board with it, having seen the results from AIG and others who got too cozy with Uncle Sam.

It used to be that “toxic assets” were known as “bad loans”, and the banks would foreclose/default/repossess on them and eat the loss. It is part of doing business in lending and the risk of bad loans is supposed to keep banks from taking bad risks. But not in the Obamanation! Now you can write billions in bad loans and not have to worry about it, the tax payers will take care of it! If you take out a loan as an individual you can’t pay, don’t worry the government is here to help!

For all their talk about believing in the private sector, this administration seems to be pushing policies that will dismantle what is left of the free market. Think that might have been the plan all along?
Post a Comment