SIGTARP on Housing: Exposing the "One-Off" Shell Game

The special inspector general for TARP, appointed by Democrats, is reported in "The Hill" as saying:

The administration program, "risks being remembered not for catalyzing a recovery from our current housing crisis, but rather for bold announcements, modest goals, and meager results," the report said.

Last month, "The Hill" also reported that Mr. Barofsky said:

The Obama administration's $75 billion program to help homeowners risks failure by, "merely spreading out the foreclosure crisis," a top government watchdog said Tuesday.

The profits and economic recovery is happening in part simply from the government bailouts of Fannie and Freddie, abetted to an unmeasurable degree by people walking away from debts in favor of spending money elsewhere. Just as corporations claim "one-time" non-recurring expenses that nonetheless hit the assets statement, the government wants us to believe that these socialized housing expenses are one-off expenses, but the private sector's performance is the real deal. A "sustainable" recovery is the MSM's current buzzword. Believe all this one-time stuff if it you will. I don't.

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I Used to Think that the Distance from the Earth to the Sun Was a Large Number . . .

From the report to Congress of TARP's Special Inspector General (SIGTARP) (Adapted from Zero Hedge post).

This is an incomprehensible number.

Is is any wonder that housing is bottoming and the Wall Street winners are winning big?

But such small benefits for such large numbers . . .

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Why the SIGTARP Report Suggests Both Looting and that a Depression Is Underway

Today's Quarterly Report of the Special Inspector General for the Troubled Asset Relief Program is quite troubling.  Early on, it summarizes matters:

The Troubled Asset Relief Program (“TARP”) now includes 12 separate, but often inter-
related, programs involving Government and private funds of up to almost $3 trillion
— roughly the equivalent of last year’s entire Federal budget. From programs involv-
ing large capital infusions into hundreds of banks and other financial institutions, to
a mortgage modification program designed to modify millions of mortgages, to public-
private partnerships purchasing “toxic” assets from banks using tremendous leverage
provided by Government loans or guarantees, TARP has evolved into a program of
unprecedented scope, scale, and complexity.

Any effort this immense, "unprecedented" in peacetime, including the Great Depression, will only be done for a truly major catastrophe, not just a "recession".  Paul Volcker, who is still at least nominally allied with the Administration, uses the euphemism "Great Recession" to describe the current downturn.  Since the word "recession" was introduced solely for PR reasons and means what "depression" meant before the Great D, we must interpret his use of the term for what it is.  TARP is response to an economic depression.  

Re the looting charge, SIGTARP has already initiated almost 20 preliminary or full criminal investigations.  These may be non-trivial:

. . . the cases include large corporate and securities fraud matters . . . insider trading, public corruption . . .

In addition, six areas of audit are underway.  These include special mention of BofA and BofA/Merrill; all 9 initial TARP funds recipients; and the payments to AIG's counterparties.

SIGTARP is specially critical of Treasury's refusal to monitor what has happened to the funds given to large financial institutions in return for preferred stock.  On its own, SIGTARP looked into the matter and received significantly detailed responses as to what the companies had done with the funds, sometimes in "granular" detail.  Why has Treasury refused such a simple matter?

SIGTARP has numerous complaints about the PPIP, which will be thoroughly analyzed by other bloggers much more expert than I.

There will be multiple "bottom lines" in this mess.   It is clear that at best Chairman Bernanke incompetently misdiagnosed matters as rosier than they were.  I wonder if Big Hank Paulson also misdiagnosed things.  In my humble opinion, he knew exactly how bad things were, given that he had recently run Goldman Sachs, which more or less runs Wall Street.  He exposed himself by waiting for the crisis that he knew was coming after he put Fannie and Freddie into receivership, then making sure in a 2 1/2 page document to request immunity for any misdeeds he might be accused of doing in implementing TARP.  How well is he sleeping these days?  

We have had unprecedented stock market manipulation by the SEC, twice putting short squeezes on to harm those who (correctly) were shorting financial stocks, then taking the pressure off after insiders and favored institutions were allowed to unload a lot of stock at unfairly high prices.

We have a Democratic Congress that would not even investigate a Republican President for alleged contractor abuses in Iraq.  One has to worry about how much zeal it will have to investigate a Democratic President's Treasury Department, especially when the Treasury Sec'y has been the glue in this disaster all along.

What is going on has elements of the Great Crash, in its financial and economic dimensions; and Watergate, with its political dimensions; as well as the S&L fiasco writ large.  One cannot think of anything like this festering toxic mix within the past hundred or more years in this country.  In this situation, where Big Finance and Big Government have been lying both by commission and by omission, there is no way to use historical economic tools to predict the future.  We just do not know what we may not know, other than that as a pretty young bride said to Rick in Casablanca, the devil has the people by the throat. 

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