David Stockman Debunks TARP Profit Claims: The Fed Runs A ‘No Banker Left Behind’ Program
Washington’s untruths about the Troubled Asset Relief Program (TARP)’s so-called “success” add up to something worse than the original taxpayer bailouts of big banks and other corporations, according to David Stockman, White House budget chief during the Regan administration.
He noted the Treasury Department recently concluded that the 2008 TARP had actually returned a profit of $15.3 billion, returning $441.7 billion on the $426.4 in taxpayer monies invested to save the likes of Citigroup, Bank of America, General Motors, American International Group (AIG) and other pre-meltdown spendthrifts.
“The ‘small profit’, along with most of the so-called ‘recovery’ of Uncle Sam’s $426 billion initial investment, was ground out of the backs of America’s savers and depositors; or it was scalped from the massive financial bubbles the Fed has generated in the Wall Street casino,” Stockman wrote on his Contra Corner blog.
“In short, under an honest monetary regime of market clearing interest rates, bank balance sheets would be far smaller. Likewise, deposit costs would be far higher, and opportunities to scalp profits from the global scramble for yield far less abundant.”
Stockman said the mainstream economics narrative and media coverage on the Federal Reserve’s ultra-easy money policies is simply perpetuating a fiction.
That’s because “what lies beneath its ‘extraordinary measures,’ such as ZIRP [zero interest rate policy], QE [quantitative easing], wealth effects and the rest of the litany, is a central banking regime that systematically destroys savers. Period,” he claimed.
Stockman said the central bank’s ZIRP has allowed big banks to profit while average Americans get squeezed by earning next to nothing on their savings.
“The policy apparatus of the state has subjected savers to brutal punishment for one reason alone. Namely, to enable the insolvent big banks of America to dig their way out of the deep hole they were in at the time of the financial crisis. By scalping false profits from the Fed’s regime of financial repression, they have, in fact, been able to return accounting profits to pre-crisis levels and beyond.”
He noted that ZIRP has enabled banks to carry $10 trillion of deposits at negative real interest rates, while making money on that cash, and pay out an average of 0.4 percent on six-month CDs when an honest payout should be closer to 4.0 percent.
“This has been called the Fed’s ‘No Banker Left Behind’ program and for good reason,” Stockman said.
“But the heart of the matter is this. The Fed and other central banks of the world have created trillions of fiat credit that is drastically mispriced and would not even exist in a free market based on honest savings from current production and legitimate requirements for capital investment.
“TARP wasn’t ‘repaid’ with a profit. It was simply perpetuated and morphed into a new form of destructive state subvention and mal-investment.”
The Center for Economic and Policy Research (CEPR) was likewise suspicious of the official government line that the U.S. made a “profit” on its TARP taxpayer loans to corporate America, and called The New York Times’ coverage of the matter a “children’s story.”
“Before you start thinking that this is a great idea and we should give all the government’s money to the Wall Street banks, imagine that we had given the same money to a different institution, Bernie Madoff’s investment fund. As we all know, Madoff’s fund was bankrupt at the time because he was running it as a Ponzi, the new investors paid off the earlier investors. He hadn’t made a penny on actual investment in years,” said CEPR on its website.
CEPR said if the government had lent Madoff tens of billions of dollars at the same low rates it charged Wall Street banks, Madoff easily could have invested the money and paid off the debt, also. (It apparently helps when taxpayers are subsidizing your loans.)
“This would have then allowed (former Treasury Secretary) Timothy Geithner to boast about how we made a profit on the loans to Bernie Madoff.
“The reality is that the boast of a profit in this context is pretty damn silly. The question is whether an important public purpose was served by rescuing the Wall Street banks from their own greed.”