Tuesday, December 15, 2009

American Grandstand!

Obama has set his sights on calling out the bankers as the evil wrongdoers who created this mess.Now he wants them to grab a mop and clean it up.What shocked disbelief he showed wondering why the banks won't lend.Didn't we rescue them in their hour of need?Don't they owe it to us now to help the recovery?Looks like we need a new show called American Grandstand!

A quick review reminds us that we redirected the TARP funds to the banks to provide liquidity to get the banks lending to drive the economic recovery.I think the TARP fiasco will go down in history as one of the worst programs ever created which is really saying something when you think of all the bad ones.

Remember,Congress created the TARP fund to buy up toxic assets and get them off the books of the lending institutions.Bush made a huge mistake by signing it.They simply gave Paulson a blank check to distribute to his banker buddies as he saw fit.He complied by immediately changing the focus of the program from toxic assets to liquidity.The toxic assets purchase has been relocated to the TALF program and is essentially inactive.

Hundreds of billions of borrowed money (the government is broke) was then handed out to the 19 biggest institutions including some like Goldman Sachs which had to be 'rezoned' if you will as a bank.They are an investment facility and don't have anything to do with standard commercial banking but for Paulson to reward his pals he had to cook the books and redesignate them.

Let's not forget that many institutions didn't want any TARP money but were forced to comply from the White House so that they would fall under the pay czar rules.

Now,what did the banks do with the money?They generally sat on it of course using it as a buffer and to comply with the increased reserve fund requirements.Today this is no longer necessary since the Fed is handing out free money with the zero or near zero interest rates.The TARP money is all being returned now so that the banks can get out from under the thumb of the rules set forth to the recipients.

Obama is playing dumb wondering why the evil banks won't lend and are standing in the way of our recovery.He's well aware that they can make more money borrowing at zero percent and investing in Treasury securities making 4 percent than by lending it to us schmucks on the street.More importantly,they are using it as a hedge against the unknown factors yet to play out.

They know unemployment is likely to rise or at least stay high for an extended period.They know that the commercial real estate bubble is leaking air.They know that the unsecured credit bubble has yet to burst.The FDIC chairman Sheila Barr herself has stated that we will have more bank failures in 2010 than 2009.They know that the banks are practicing forbearance in accounting for the toxic assets still on their books since the TARP money never addressed it.

With over a trillion dollars more than regulators require in their excess reserves,the liquidity issue is dead.The stability issue is the main priority.The banks are simply taking advantage of the favorable lending conditions at the Fed to cover-up their poor lending practices leading up to the recession.Now they are in the catbird seat to be the reformed responsible partner they should have been all along and they aren't making the risky loans.

This reflects the larger problem with our economy in which we have shifted from a manufacturing economy to a consumer driven consumption based economy.This is driven by borrowing and credit and when it's not easily available to you and I like it is to the banks,recovery will wither and die.Just like after 911 when Bush asked us all to spend money and show those bad terrorists that they can't affect us,we must do the same today to drive any real recovery.This is why it is imperative that the administration constantly sell us 'green shoots' so that our consumer confidence rises and we spend our money like good little soldiers.

This is impossible to achieve with the agenda Obama adheres to.With everything directed at social and economic justice,healthcare reform,cap and trade and immigration reform driving the wealth redistribution he desires,this requires anti-business and anti-capitalist policies.If businesses won't expand due to high tax policies and stability concerns,any recovery dies and consumer confidence and spending follows suit.It's a vicious circle that feeds upon itself.Action needs to be taken very soon to stop it.More to come...

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