Wall Street's Greatest Heist: The TARP

The notion that without the $700bn bailout we would be reduced to bartering was a ruse by the banks to get taxpayers' money

Two years ago, the top honchos at the Fed, Treasury and the Wall
Street banks were running around like Chicken Little warning that the
world was about to end. This fear-mongering, together with a big assist
from the elite media (thatis, NPR, the Washington Post, the Wall Street
Journal, etc), earned the banks their $700bn Troubled Asset Relief Programme (Tarp) blank cheque bailout. This money, along with even more valuable loans and loan guarantees from the Fed and FDIC, enabled them to survive the crisis they had created. As a result, the big banks are bigger and more profitable than ever.

the same crew that tapped our pockets two years ago is eagerly pitching
the line that their bailout was good for us. It may be the case that
the history books are written by the winners, but that doesn't prevent
the rest of us from telling the truth.

Let's step back to where we were two years ago.
The huge investment bank Bear Stearns had collapsed. So had Fannie Mae
and Freddie Mac, the mortgage giants. Lehman Brothers, the fourth
largest investment bank had also gone down. AIG, the country's largest
insurer, had been put on life support by the government.

At this
point, Merrill Lynch, Morgan Stanley and Goldman Sachs, the three
remaining independent investment banks, all faced runs that would
quickly sink them without government intervention. Citigroup and Bank of
America, two of the three largest commercial banks, were also almost
certainly insolvent. Many other banks also faced insolvency, especially
if they took big losses on their loans to other institutions that were
about to go bankrupt.

This was when the Wall Street boys made
their mad rush for the public trough. They enlisted everyone that
mattered in the effort, including Treasury secretary Henry Paulson,
Federal Reserve Board chairman Ben Bernanke, and Timothy Geithner, then
the head of the New York Federal Reserve Bank.

The line was that
the economy would collapse if congress did not immediately rescue the
banks. They were prepared to make up anything to save the banks in their
hour of need. Bernanke was probably caught in the biggest fabrication
when he told congress that the commercial paper market was shutting down.

If true, this would have been disastrous, since most major companies rely on selling commercial paper
to meet their payroll and other routine expenses. If this market shut
down, it would mean that even healthy businesses could not pay their
workers and suppliers, which would quickly cause the whole economy to
grind to a halt.

Bernanke did not bother to inform congress and
the public that he had the ability to single-handedly support the
commercial paper market. He waited until the weekend after congress
approved the Tarp to announce that he would establish a special Fed
lending facility to buy commercial paper.

In reality, the Fed
almost certainly had the ability to keep the economy going by sustaining
the system of payments, even if the chain of bank collapses was allowed
to run its course. In the 1980s Latin American debt crisis, the Fed had
an emergency plan to seize the money centre banks, and keep them
operating, if a default by a major Latin American country pushed them
into insolvency.

By the time of the Lehman crisis, the financial
markets had been severely stressed for over a year. The first major bank
collapse had occurred more than six months earlier. It would have
required a degree of unbelievable incompetence and/or irresponsibility
for the Fed not to have devised a similar emergency plan to keep the
systems of payments operating in a worst-case scenario.

even if the Fed had been as incompetent as many claim, it would not
have taken long for it to improvise a system whereby certain payments
would be prioritised and the system of payments would again be
up-and-running. The notion that we would be sitting in a 21st-century
economy and reduced to barter payments was an invention of the bank
lobby to get the taxpayers' money.

The first Great Depression was
the result of a decade of failed policies, not a single bad mistake at
its onset. There was absolutely nothing that we could have done back in
September-October of 2008 that would have required that we experience a
decade of double-digit unemployment. The spectre of a "second great
depression" is a fairy tale invented by the bank lobby to make the rest
of us feel good about having given them our money.

We are also supposed to feel good that the vast majority of the Tarp money was repaid.
This is another effort to prey on the public's ignorance. Had it not
been for the bailout, most of the major centre banks would have been
wiped out. This would have destroyed the fortunes of their shareholders,
many of their creditors, and their top executives. This would have been
a massive redistribution to the rest of society - their loss is our

It is important to remember that the economy would be no
less productive following the demise of these Wall Street giants. The
only economic fact that would have been different is that the Wall
Street crew would have lost claims to hundreds of billions of dollars of
the economy's output each year and trillions of dollars of wealth. That
money would, instead, be available for the rest of society. The fact
that they have lost the claim to wealth from their stock and bond
holdings makes all the rest of us richer, once the economy is again
operating near normal levels of output.

Instead, we have the same
Wall Street crew calling the shots, doing business pretty much as they
always did. The rest of us are sitting here dealing with wreckage of
their recklessness: 9.6% unemployment and the loss of much of the middle
class's savings in their homes and their retirement accounts.

the lackeys of the Wall Street crew are telling us that we should be
thankful that we didn't have a second Great Depression. Maybe we don't
have the power to keep the bankers from picking our pockets, but we
don't have to believe their lies.

© 2023 The Guardian