A post by Pat

Eh, it’s only money. The financial crisis started here with subprime mortgage defaults but the geniuses on Wall Street had cleverly spread the risk all over the world. The toxic assets were sliced and diced and blended into a financial soup. No one knew how much poison was in their cup. The U.S. and other countries took steps to protect their financial institutions. Everybody else was much better at it.

TARP bailout disproportionately benefited foreign banks: Government Panel

“While most nations targeted their funds to save individual institutions, America simply flooded the markets with money to stabilize the system,” the report declared.

“Since much of this money accrued to U.S. institutions with extensive international operations, it appears that America’s rescue had much greater impact internationally than other nations’ rescues had on the U.S.”

In other words, our money wound up in other people’s pockets.

For example, billions of dollars in bailout money actually ended up in large banks in France, Germany, among other nations (in connection with the rescue of American International Group) — an inevitable result given that company’s extensive foreign operations. However, the U.S. government bore the entire $70-billion risk. Indeed, the U.S. share for this single rescue exceeded the size of France’s entire $35-billion capital injection program and was nearly half the size of Germany’s $133-billion program.

I remember financial blogs and forums at the time warning about money winding up in foreign banks. It only took until now for a Congressional Oversight Panel (COP) to figure it out. They still can’t assess the impact. Treasury didn’t keep good records.

Even at this late date, COP noted, it is difficult to assess the precise international impact of the TARP or other U.S. rescue programs because the Treasury gathered very little data on how TARP funds flowed overseas.

Had the U.S. received better data and tracked the flow of bailout funds, it might have been possible to share the cost of the rescue package with foreign nations, COP asserted.

We were throwing around money with no idea where it would wind up. Oh well, better luck next time.

Based on its findings, COP recommends that the U.S. Treasury collect data on cross-border flows of funds, increase the scope and frequency of stress-testing on financial institutions, and collaborate with foreign policymakers on a cross-border resolution regime and for regular crisis planning and financial “war games.”

“Policymakers need strong, clear data to measure the success of their rescue efforts and to respond effectively to future crises,” COP noted. “[The] Treasury gathered very little data on how bailout funds flowed overseas, which makes pinpointing the exact amounts and sources of the flow of cross-border rescue funds impossible.

And let’s call the next one CRAP, Congressional Rip-off (of the) American People

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4 Comments | Leave a comment
  1. Maynard says:

    Should we be surprised? The Washington mindset is that they serve the world, not America. And the big players, the ones who are first in line to feed at the government trough, are globalists. It’s an inconvenient and ignorable detail that these people are accountable to Americans, and American taxpayers are on the hook for their largess.

    We can regard Michelle’s vacation in Spain as symbolic of everything else that’s going down.

  2. RuBegonia says:

    I’ll rememer that acronym.

  3. MRFIXIT says:

    TARP bailed out foreign banks (effectively) and the AIG bailout was specifically targeted at foreign banks that held mortgage backed securities, and were “insured” by credit default swaps sold by AIG. Greenspan, Chris Dodd and Barney Franks all agreed that credit default swaps were not technically insurance, so AIG did not have to hold reserves against the massive debt they were not technically insuring. Great, — free money for AIG. It would be like State Farm not having to hold reserves against the likelihood of an insured house burning down. Just collect the premiums and pass out big bonuses to the sales agents, no house will ever burn down, right?

    The AIG house darn sure burnt down, and the bailout was to cover the credit default swaps in order to prevent anybody with insured bonds from dumping them on the market and causing a general bond market meltdown. Most of those mortgage backed, bundled securities were held by foreign investors that also had Treasuries, and other U.S. general obligation bonds, so if the MBS holders headed for the exits, they would likely dump all their bonds and move to cash. That would cause a bond crash, and seize up credit for governments. It would have likely triggered an immediate currency crisis, followed by hyperinflation as the government would start printing money to fund itself and reimburse account holders for the FDIC insured accounts, and print up some more to guarantee government held treasuries. TARP effectively borrowed the money to fend off a massive sell-off and destroy the dollar in a more orderly fashion. It’s going on right now, under our noses. The administration is doubling down on a bad idea. We will see the results in 12-15 months, as comodities rise, and then everything starts to see price hikes.

    The arrogant Keynsians believe they will be able to maintain control of inflation held at 13 – 14% and tell us it’s really only 4 or 5%. That way they can inflate away the massive debt, while screwing over the savers and the old people. It probably looks good to those eggheads on paper, but it’s going to stink for the rest of us.

  4. makeshifty says:

    Well this, I think, is something we can say happened squarely on George Bush’s watch. Had I been in his shoes I likely would’ve done the same thing at the time, given the situation we were in. I don’t know whether I would do the same thing in the future, given what I know now. Part of what we did, which I don’t hear discussed much, was hide what needed to be exposed: That government intervention in the economy doesn’t work. It makes things worse.

    Giving credit where it’s due, Bush tried to head off the Fannie Mae/Freddie Mac problem at the pass multiple times, but didn’t put his political capital behind it. So in the end, Bush “set” the ball (using a volleyball analogy) so that Obama could “cram” what he wanted down our throats (“government is our savior”).

    I feel like one counter-terrorism/security expert I remember hearing about in the last few years (I can’t remember the name) who hasn’t liked the security measures we’ve used at airports, calling them meaningless. He said terrorist attacks are stopped, if at all, BEFORE they get to their target (before they get to the airport). I think the same can be said of the financial crash of 2008. The time to have stopped it was years before it happened (ie. put the kibosh on Fannie Mae/Freddie Mac and the Acorn organizers). By the time ’08 came around, it was too late.

    With the recent financial regulation bill that was passed, we can look forward to the same type of crash happening in the future. Great. We’ve learned nothing. I can’t wait.

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