The Great Moment in TARP

There were lots of horrendous moments in TARP and the crafting of the bills that bailed out Wall Street for their criminal incompetence.

One example is when Chris Dodd's staff (at the behest of an un-named official, probably Tim Geithner) stripped out compensation limits from the legislation.

There was one great moment, though.  It was the type of victory for the little guy that almost never happens. 

To understand this moment, it is illustrative to look at the two TARP bill votes.

The first vote was to have the government buy up all the toxic assets the banks had acquired.  Basically, give us the toxic stuff, and leave the banks to continue raking it in.  This vote actually failed due to popular outrage at the possibility that the American people would be stuck with the bad stuff in the banks' portfolios.

The second vote was for the taxpayer to basically give the banks billions of dollars.  Now, whether we wanted it to happen or not, it was going to happen and it is happening today.  That's why, for instance, the government continues to lend money to the banks at 0% interest, and then sell them T-bills that allow the banks to make 3% interest.

The government wants to use their power to make banks rich.

In the code that was written in the bill, some sneaky congressional staffer added these lines:

(c) Direct purchases


"If the Secretary determines that use of a market mechanism under subsection (b) is not feasible or appropriate, and the purposes of the chapter are best met through direct purchases from an individual financial institution, the Secretary shall pursue additional measures to ensure that prices paid for assets are reasonable and reflect the underlying value of the asset."
 
http://www.law.cornell.edu/uscode/12/usc_sec_12_00005223----000-.html

What does this mean?  Well, the bill, without these lines, would have meant that the government would have given the banks loans, or would have simply given them money.

However, they would not have been able to buy the stock of the companies. 

It is because we bought stock that people are now saying that TARP may turn a profit.  (It probably won't, but it won't cost as much as we thought at first.)

If not for that sneaky staffer, taxpayer losses from TARP would have been much, much greater. 

It is ONLY because of that sneaky staffer that the American people had a chance to benefit from the banks (and auto-makers) recovering.

TARP was, in my opinion (as I've mentioned at length) a disgusting series of anti-capitalist measures, taken with no regard for the taxpayer, and which handsomely rewarded Wall Street banks for reckless and criminal behavior. 

These lines of code, inserted in the bill, are the only bright spot of the entire debacle.  If we had enacted compensation limits, haircuts for counterparties, and wiping out of shareholder equity, along with a nationalization and the US as the sole shareholder to be reimbursed at an IPO sometime down the road when the banks were healthy, I doubt there'd be the outrage about TARP that there is.

Instead, TARP was written in such a way as to maximize the benefit Wall Street received.  That's why we're mad. 

Thanks to one ballsy congressional staffer, though, we actually derived some benefit from TARP.  It's these lines of the bill that are the only part that didn't completely screw over America.