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OpEdNews Op Eds    H2'ed 9/28/09

Look Out Below! They Call This Season 'Fall' for a Reason

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By Dave Lindorff

So now it turns out that the whole Troubled Assets Relief Program
(TARP) was a flop or more likely a scam. Remember Bush Treasury
Secretary Henry Paulson telling us last September that credit markets
had locked up, and then, after half of the $750 billion that he
extorted out of Congress was handed out to Wall Street firms, new
President Barack Obama justifying the spending of the second half of
the money because we needed to "get the banks lending again"?

Well, now Neil Barofsky, the special inspector general for TARP, is
telling us that all that money, and another more than $2 trillion in
loans, accomplished nothing. In an interview
with Lagan Sebert, published in Huffington Post, Barofsky says, "We
were told by Treasury that the purpose of the TARP fund was to increase
lending. But we haven't increased lending."

Well yeah, that's true. Just ask any ordinary working stiff. My
little bank, the Harleysville National Bank here in eastern
Pennsylvania, far from expanding lending, has been shutting down
customer credit lines. As a bank manager told me, they were "reviewing
all our equity lines" in light of declining property values (actually,
property values in our area north of Philadelphia have remained pretty
stable). In general, banks across the country have been canceling
credit lines, closing credit card accounts on customers deemed
risky—including small businesses—and making it very hard to get a new
mortgage. (They've also been raising all kinds of fees, ripping
customers off in other ways, but that's another story.)

And that goes for the biggest banks that got billions of dollars in taxpayer bailout funds.

Barofsky has been trying doggedly to find out whatever happened to
all that money of ours that was shoveled out to the banks, and as he
reports, he's been working not just without any help from the Treasury
Department, but actually against the active resistance of Treasury,
which he accuses of having tried to dissuade him from even looking into

"My biggest surprise," he says, "is when we announced an audit (of
TARP), Treasury went out of their way to say"it would be a big waste of
time." He says Treasury officials including Treasury Secretary Tim
Geithner, claimed that it would be impossible to find out where the
money went, on the argument that money is "fungible"—that is to say all
money is the same. Of course this is a cynical and ridiculous
assertion. If it were true, there would be no job for auditors, since
all auditors do is look to find out where money went. (Imagine telling
an IRS auditor that it is a waste of time auditing your books, because
money is fungible!)

In any event, Barofsky has gone about his work, with or without the
backing of the Obama Treasury Department, and what he found is that
instead of lending out the money that they were provided with by
taxpayers, the banks have been "acquiring other institutions, sitting
on it, paying down credit lines," and, of course, paying out obscene
bonuses to executives.

The one thing the banks are not doing is lending.

But then, as I wrote last February, it was silly to think that by
shoveling money into banks during a record recession, the banks would
then lend it out. First of all, there was the awkward reality that good
companies were and still are not looking to borrow money. Rather, they
are trying to pay down debt and get their balance sheets on more solid
ground to survive a period of low or declining sales and earnings. The
only companies that would be trying to borrow right now would be the
ones that were on the rocks, and wanted money just to stay afloat. And
what banker would lend to them? And second, if the banks could make
more money by investing their new cash instead of making risky loans
with it, why would they lend? So most of them just used the money to
invest in Treasury Bonds.

The long and the short of it is that we've been taken for a very
big and costly ride by banks that created a huge crisis and that then
got the government to bail them out of it with our money, and by two
administrations, one Republican and now one Democratic, that have been
submissive and willing servants of the big banks.

The big surprise to me has been Paul Volcker, who I mistakenly took
to be an over-the-hill relic and Wall Street patsy. The former Carter
and Reagan-era Federal Reserve Board chairman, currently chair of
President Obama's economic advisory panel, is publicly warning
that the president's bank policies are preserving a system of giant
banks that are "too big to fail," and are risking further, even larger

Barofsky agrees, saying that since the bailout, under Obama's bank
policies, big banks already deemed "too big to fail" have become even
bigger, and he concludes, "We may be in a far more dangerous place
today than we were in a year ago," for having told certain financial
companies that we will not let them fail.

Little wonder that the smart money—that would be the insiders in
corporate boardrooms and executive suites—is reportedly selling shares
as fast as they can be sold, with the experts reporting
that insider sales of company stock are running 31:1 on the sell side.
The explanation: with layoffs still running at over 500,000 a month,
and nobody hiring, these executives don't see anything in the year
ahead or even longer that is likely to put the economy on a renewed
growth path.

Putting these bits of news together doesn't paint a pretty picture:
We've got an economy that appears headed for at best a long period of
stagnation and, more likely, for a second downturn, once the effect of
last March's stimulus package wears off. We've got a financial system
that has been propped up artificially, its balance sheets soggy with
underwater mortgages and worthless derivatives, and its executives
holding assurances that they can count on the government bailing them
out no matter what stupid or self-serving decisions they make. We've
got an economy that is 70% based upon consumer spending, in which one
in five people is unemployed or involuntarily underemployed. We've got
a nation that hardly makes anything, at the same time that its currency
is sinking like a stone, making imports increasingly expensive, And we
have a stock market that has been inflated into a giant bubble, just
waiting to pop.

October should be an interesting month this year.
DAVE LINDORFF is a Philadelphia-area journalist. His latest book is
"The Case for Impeachment" (St. Martin's Press, 2006). His work is
available at


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Dave Lindorff, winner of a 2019 "Izzy" Award for Outstanding Independent Journalism from the Park Center for Independent Media in Ithaca, is a founding member of the collectively-owned, journalist-run online newspaper (more...)

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