Sunday, February 22, 2009

Does TARP + TALF = SCAM?

Back in November, I blogged that Henry Paulson's "the sky is falling" reaction in September was staged (In this crash for cash scheme, the criminals targeted innocent taxpayers) in order to panic we the people and Congress, so that he could shove Troubled Assets Relief Program (TARP) down our throats with no provisions to pay taxpayers back, and even more importantly, no limits or penalties on top executives - can't forget the three-page Paulson Doctrine declaring him ruler of the universe.

“Many of us were told in private conversations that if we voted against this bill on Monday that the sky would fall, the market would drop two or three thousand points the first day, another couple of thousand the second day, and a few members were even told that there would be martial law in America if we voted no.” -- Democratic Congressman Brad Sherman
When Senator James Inhofe was asked who was issuing the warnings of a depression and marital law prior to the bailout being passed, Inhofe responded:
“That’s Henry Paulson. We had a conference call early on, it was on a Friday I think – a week and half before the vote on Oct. 1. So it would have been the middle … what was it – the 19th of September, we had a conference call. In this conference call – and I guess there’s no reason for me not to repeat what he said, but he said – he painted this picture you just described. He said, ‘This is serious. This is the most serious thing that we faced. He said the crisis would be far worse than the great depression if Congress didn’t authorize the bill to buy out toxic debt, a proposal which he abandoned the day after he got the money."
On February 20, Dean Baker posted, Did Ben Bernanke pull the TARP over our Eyes? in his blog, Beat the Press and stated the "reason" for this urgency:
One of the important factors behind the urgency was the claim that even healthy non-financial companies (e.g. Verizon or Boeing) could not borrow in commercial paper markets to get the credit they needed to meet their payrolls and pay their other bills. Ben Bernanke contributed to this view when he answered a question at a press conference:

"I see the financial markets as already quite fragile. The credit markets aren't working. Corporations aren't able to finance themselves through commercial paper."

The weekend after Congress passed the TARP, Bernanke announced that the Fed would begin to directly buy the commercial paper of non-financial corporations.
Baker then provides new evidence that the September panic might have been nothing more than an act
At a speech at the Press Club this week, Bernanke was asked why he waited until after the TARP was approved before he began buying up commercial paper of non-financial corporations. He responded:

"Well, look at the calendar. The financial crisis intensified in mid-September and got worse to the point where there was a huge global financial crisis in early October. During that interim, Congress passed the Emergency Economic Stabilization Act, which includes the TARP. And that TARP, the money there was very useful in helping to stabilize the banking system in early October. There was this critical moment. I think it was about the 14th of October, following a G7 meeting here in Washington, where not The United States but countries around the world took very strong actions in terms of capital, in terms of guarantees and other actions to try to stabilize the world banking
system.

It was during this period that the commercial paper market and the money markets, money market mutual funds showed the worst stress. It was in those 18 weeks that that stress appeared and those markets began to dysfunction. And we can't set these programs up immediately. It takes a bit of time to get them structured legally and to arrange for the market terms and to work with market participants and so on. But we got it going actually quite quickly. It's been now more than three months since the commercial paper facility has been functioning. And it seems to have had notable impact on both commercial paper rates and on the terms of finance available."
Now, in addition to TARP, another four-lettered acronym can be added to the effort to thaw out credit and restore lending: TALF (Term Asset-Backed Securities Loan Facility). The idea behind TALF is that "lenders using the TALF would be willing to retain more of the risk associated with loans on their own books to get deals done. That should help ensure that lenders make better-quality loans in the future, because they will be liable for most of the losses."

However, according to Simon Johnson, an economics professor at the Massachusetts Institute of Technology and a former chief economist at the International Monetary Fund, TALF will provide "government subsidies to investors like hedge funds. Investors who borrow from the Fed could enjoy annual returns of 20 percent or more."

Is Tim Geithner, Henry Paulson 2.0? As Mike Whitney says, “a Trojan Horse for the banking oligarchs”?

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