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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Stimulus, Stabalizer, Spineless or Strategy?

While many conservatives complain President Obama's stimulus package is far too costly, many liberals complain Obama's stimulus package does not go far enough. At the insistence of Republicans, President Obama, in the spirt of bipartisanship and unity, has pared it down even more.

Although the stimulus package sounds like a huge sum of money, relatively speaking, it "only" amounts to approximately 2% of of America's $15 trillion GDP. Economist Paul Krugman says, "Obama’s economic policy should be bolder, not more cautious than FDR’s economic policy" and Columbia University economist Jeffrey Sachs calls the stimulus package a "fiscal pinata" in his article, The Stimulus is a Fiscal Straitjacket.

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC, said, Roosevelt was "too worried about the whining of the anti-stimulus crowd that he confronted," and that if anything, Roosevelt didn't go far enough.

Others have said the following regarding the potential of the stimulus package :

"The largest spending bill in history is going to turn out to be the war in Iraq. And one of the things, if we're going to talk about spending, I have a problem with is when we leave out that extraordinarily expensive, damaging war in Iraq, which has caused much more harm than good, in my judgment.

And I don't understand why, from some of my conservative friends, building a road, building a school, helping somebody get health care, that's -- that's wasteful spending, but that war in Iraq, which is going to cost us over $1 trillion before we're through -- yes, I wish we hadn't have done that. We'd have been in a lot better shape fiscally. -- Barney Frank

"But when I look at it in its entirety, I fear that we may soon look back and say that we missed a huge chance to go bigger and bolder. After all, there were three flaws with the old economy that has crashed:

1. It favored consumption over production
2. Debt over smart savings;
3. Environmental damage over environmental renewal.

Some parts of the stimulus package seem to be more of the same -- trying to prop up the old, failed economy. That strategy simply won't work -- but we could waste a lot of money and time trying. Instead, we need a new direction for our economy. You can't jump halfway across a chasm -- you just end up falling into the abyss." -- Van Jones, author of The Green Economy

"First of all, there's a question of magnitude. The overall stimulus is about 6 percent of GDP. We did not exit the Great Depression without a stimulus that amounted to about 25 percent of GDP -- we called that World War II... The second problem is with the mix... Only $335 billion worth goes to job creation -- that's about 3.5 million jobs, about $100,000 a job. Three-and-a-half million jobs is only two percentage points on the unemployment rate. That's not enough. I would get rid of the tax cuts and use the entire package for job creation... There are lots of great public works projects that would be well worth supporting. And, in the near term, what about CCC-type activities that put people to work right away, cleaning up public parks, weather-stripping homes, offices, schools, government buildings?" -- Rick Levin, Economics professor and President of Yale

"I am not suggesting that the United States start a world war in order to solve the world's economic problem. But I am suggesting a strategy that could be called the fiscal equivalent of war.

It would consist not merely of updating or repairing the nation's infrastructure, but in undertaking massive new investments that would expand the scope of American industry, and address other urgent problems in the process: global warming, over-reliance on petroleum, and the need to revive America's domestic manufacturing capabilities—not just to provide jobs, but also to provide tradeable goods that can reduce the country's current account deficit." -- John Judis article, Not Doing Enough from the New Republic

With so much at stake, it's natural to criticize and speculate that President Obama might be wasting a crisis or, a ripe opportunity to act; or that he is failing to take advantage of the leverage he currently has; or that politics should not enter into his economic decisions; or that we should stampede rather than tiptoe, etc. However, to be fair, we should also consider the possibility that President Obama might be one step ahead of all of us.

Abraham Lincoln, who President Obama more than admires, was a man who connected the dots, as Joe Biden once said was so important. Rather than a quick study, Lincoln was a deep study, as he considered every side of the question. James M. McPherson author of Tried by War: Abraham Lincoln as Commander in Chief said, as a lawyer, Lincoln's strategy was to focus on the main point, conceding minor points to his opponent, therefore lulling them into a false sense of complacency. Lincoln reserved the main point, on which the entire case turned, to pounce.

In addition, according to McPherson, President Lincoln forced the hand of the Confederacy, rather than start the war himself. This gave him the upper hand by providing him with a united North, due to his reasonable actions.

In the same way, isn't it possible that President Obama might be taking a page out of President Lincoln's book, so to speak? At first he tries to resolve the issue at hand - the economy - in a reasonable and cooperative manner, in hopes that his opponents will respond in the same way. Fully realizing his opposition may snap the extended "olive branch" in half, his initial peace offering should be enough to unite the people behind him, thus giving him the fresh impetus required to tackle the structural changes that must take place for our economy to function in the 21st century.

After all, look at Obama's choice for White House chief of staff: Rahm Emanuel, the pitbull politician...the killer strategist.

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Will a Superficial Recovery Seal Our Fate?

Approximately a decade ago, my body was invaded by pathogenic microorganisms that continued to multiply to the point where they almost killed me. Partly my fault and partly the doctor's, I ended up treating only the symptoms with pain killers and topical medicine. As the symptoms worsened, the doctor gradually increased the dosage of the meds that masked the warning signs that something was very wrong, until the infection got so bad that it broke through the prescribed drugs spiking my temp to 106 degrees. The doctor proceeded to slice me open with very little anesthesia- yep, I woke up - and removed the source of the infection and contaminated tissue which had turned gangrenous. It was touch and go for weeks but I pulled through.

I'm sure, if anyone reads this blog, right about now, they're thinking, "that's great, what's your point"?

Well, just as treating only my symptoms resulted in me almost losing my life, just treating the current financial crisis may result in America losing its "life" as "numero uno". In order to avoid this potential catastrophe, it's imperative that people understand that the financial crisis is only a symptom of something much deeper: an outdated, rotting to the core, economic infrastructure, and a culture that promotes narcissism, complacency, greed and a disdain for the poor and suffering.

It is easy to cut interest rates, print money, and go shopping. It's a little harder to create "shovel ready" projects and dig ditches just to fill them up again. It's almost an insurmountable task to create a new economic framework that will respond effectively and coherently to contemporary conditions and restore economic health for the long run.

Nevertheless, in order to continue as the "beacon on the hill", as our globe continues to shrink, and as technology advances in exponential increments, further leveling the playing field, we must incorporate a social conscience into a new economic model, including other purposes for businesses besides maximizing profit for shareholders. Of course profit will still factor into the equation, however it should not be the ONLY factor.

But, what happens if our economy reacts to the stimulus (mostly tax cuts and spending) President Obama hopes will take place in February, and the market temporarily recovers? Will removing the financial crisis (symptoms), tempt us to take the easy way out and get back on the same track that got us into this mess? Or will we surmount the insurmountable and put the American economy on a healthier more sustainable path?

Hopefully, we will not need to experience a crisis like the Great Depression to create the impetus for change...that this financial crisis will be enough to ditch the old tracks and create brand new ones.

“Laissez-faire, Supply-and-demand, - one begins to be weary of all that. Leave all to egoism, to ravenous greed of money, of pleasure, of applause: it is the Gospel of Despair!” –Thomas Carlyle

“It always seemed strange to me that the things we admire in men, kindness and generosity, openness, honesty, understanding and feeling are the concomitants of failure in our system. And those traits we detest, sharpness, greed, acquisitiveness, meanness, egotism and self-interest are the traits of success. And while men admire the quality of the first, they love the produce of the second.” –John Steinbeck

Cost estimate for Senate version of H.R. 1, the American Recovery and Reinvestment Act of 2009

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We, the Money Sheltered Ignorant, Must Stand Up.

Let's face it, most of us, who were sheltered by a certain amount of wealth, were "free market" advocates. Brainwashed, perhaps, however, fully supportive of the idea that interference in the "free market" system is akin to treason, we never asked ourselves, where's the freedom in "free market"?

Or, in what universe are the markets free when a few large corporations completely control the supply and the price of commodities? At least, I didn't. Anyway, if that's the case, why did we the "wealthy enough to be comfortable" worship at the altar of laissez faire?

The simple answer is, as George Orwell put it, "money-sheltered ignorance". That between the illusion of our own sense of security, too much wealth, and 'willful' or 'distracted easily' ignorance of what was really going on; we the "wealthy enough to be comfortable" fell asleep at the wheel. The market was never free.

However, now, that we're in a financial crisis that effects all of us, even those at the top of the pyramid, it's clear that the "free market" did not, does not and will not guarantee economic efficiency or social justice all by itself. Government must interfere in order to avoid inequity and social stratification in the extreme. As President Obama indicated, the size of government matters little...what matters is if government works.

The chance for freedom is here, and it's up to we, the people privileged enough to remain ignorant of the reality of "free market" economics, to transcend any leftover greedy impulses to determine what will really work to stimulate our economy for all of us, rather than just the few.

So, what's the best way to get the most bang for our buck?

Consider this. People who literally live paycheck to paycheck have no choice but to spend every dollar received. Whether it's spent on groceries, gas for their car, or electricity to heat their home, etc., the working poor and lower income America cannot afford to stash their money away. Therefore, this group of people should be targeted to stimulate the economy.

According to Moody's Report:

For every $1 spent on food stamps; $1.73 is generated in economic activity.

For every $1 spent on unemployment; $1.64 is generated in economic activity.

For every $1 spent on infrastructure; $1.40 is generated in economic activity.

For every $1 spent on tax cuts; $103 is generated in economic activity.

For every $1 spent on business incentive tax breaks, for example, "accelerated depreciation" or tax breaks for buying new equipment; $ .33 cents is generated in economic activity.

Not to mention, the greatest way to induce spending is to direct a large part of the stimulus toward the states and other localities because without federal aid, states must cut spending, therefore deepening the recession even further.

Unfortunately, President Obama's reality is that, in order to pass a stimulus package, he must conciliate to those stuck in the old framework. However, the more that we, the people stand up, the less conciliatory the President has to be.

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It's Our Money, Stupid!

Paulson, Bush, Wall Street...
Why are we so stupid? Myself included. Why do we get all excited over stimulus checks written for only an infinitesimally small fraction of our own money, the same money taken from us to fund the agenda of a few greedy warmongers?

Why do we act like tax cuts, designed to rip us off, only to benefit those of us who already have enough money to wallpaper the the entire state of Texas, is a good thing? Oh sure, we might get a few dollars at tax time, a mere fraction of what it cost us to line the pockets of those Texan wallpaperers.

We are so easily distracted by the shiny penny in front of us that we completely fail to see the guy who threw it there, is now picking our pocket clean.

Will the current economic fiasco teach us a lesson? If history is any indicator, the answer is, not a chance.

More than once, Willie Sutton, dressed as a prison guard, carried two ladders clear across the yard in order to rob some "poor" unsuspecting soul, blind. When caught in the spot light, he yelled out, "It’s ok!" and continued on with his mission without missing a beat.

Two ladders?!?

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Do You Qualify for a Stimulus Payment?

Get your 2007 Form 1040, or Form 1040EZ, or Form 1040A available to use the Economic Stimulus Payment Calculator to see if you qualify for the stimulus payment.

According to law, the economic stimulus payment amount that everyone other than married couples filing jointly would otherwise be entitled to receive is $600. That amount is reduced by 5% of the amount that their Tax Year 2007 Adjusted Gross Income exceeds $75,000. If your Adjusted Gross Income exceeds $87,500 that amount is reduced to zero.

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