Thursday, September 6, 2012

TARP Overseer Neil Barofsky on Bailouts & Obama

Neil Barofsky, the former Special Inspector General for TARP and author of "Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street" provides an in-depth account of his experience behind the scenes, as he tried to
negotiate what he initially believed was a program designed to save main street but that he later discovered was really created with the full intention of bailing out Wallstreet.

Barack Obama on TARP

President Obama has remained a strong supporter of the TARP program throughout his time in the Senate and in the White House. His actions as President have drastically changed the program, taking it from its original form as a mechanism to purchase specific kinds of stocks and warrants and using the program funds to spur lending among small businesses, create programs to assist homeowners in refinancing their homes, rescue GM, and create programs to directly provide funds to states hardest hit by the housing crisis.

What is TARP

The Troubled Asset Relief Program (TARP) was created in October of 2008 to address the fiscal crisis by purchasing warrants and stocks from financial institutions so that those items no longer burdened the banks. The legislation outlines what items can be purchased, and defines the institutions from what institutions those items can be purchased. President Bush violated those rules prior to leaving office when he loaned money to General Motors and Chrysler. President Obama further violated those rules when he purchased stock in GM and then used the influence from those purchases to direct changes at GM.

Record as Senator
In addition to voting for the TARP program, Senator Obama spoke on the Senate floor in support of the program. In that speech, he urged his fellow Senators to "step up to the plate" and do the right thing in passing the legislation. He noted that a similar program had failed in the House and triggered a fall in the stock market. In supporting the program, he also urged it to have a program for home owners and an oversight board for the funds.

Second Half of TARP

After Senator Obama won the 2008 Presidential election, he asked President Bush to request the second half of the TARP funds to be allocated to TARP. In making the request, he stated that the economy was still too frail and that it would be irresponsible to enter office without having all the tools he needed to address the problem.

Request for Second Half of TARP

On January 12, 2009 President Bush stated that if President Obama desired the second installment of TARP funds, then he would move forward with the request. President-elect Obama immediately asked President Bush to request the funds.
  "(it would be) irresponsible ... to enter into the administration without any potential ammunition should there be some sort of emergency or weakening of the financial system.
  It is clear that the financial system, although improved from where it was in September, is still frail."  Barack Obama on TARP 

TARP Subprograms

 The Emergency Economic Stabilization Act of 2008 (otherwise known as "the bailout") created the Troubled Asset Relief Program (TARP). Some of the 9 subprograms initiated under TARP were in place prior to President Obama assuming office. Other programs were initiated during his administration. The programs initiated by President Bush include:
  • American International Group
  • Automotive Industry Financing Program (AIFP)
  • Capital Purchase Program
  • Targeted Investment Program
  • Asset Guarantee Program
President Obama has initiated numerous programs using the TARP funds. These purposes of these programs range from helping people refinance their homes to spurring lending for small businesses to welfare funds as shown below:
  • Small Business and Community Lending Initiative
  • Home Affordable Modification Program
  • Consumer and Business Lending Initiative
  • Community Development Capital Initiative
  • Public-Private Investment Program
  • Hardest Hit Funds Program
  • FHA Short Refinance Program

 TARP and GM

The use of TARP funds to bail out General Motors is addressed in a separate item. The purchase of stock and warrants from GM was not valid through TARP as the GM and Chrysler are not financial institutions as defined by the TARP legislation. The use of that stock holding as leverage to force the CEO of GM out and to allow the US government to appoint chairs to the board at GM is counter to guidelines of TARP which expressly forbid purchasing stock with voting rights so that the government could not assert influence over companies it had purchased shares of through the program.

Funds Committed to TARP

The TARP program initially consisted of programs to deal with toxic assets. Those programs were extended by President Bush when he initiated loans to President Obama. President Obama further extended those programs to purchase stock in auto companies and then invest in local communities. Over 87% of the money issued by President Bush has been returned while roughly 9% of the money issued by President Obama has been returned. This data is current as of mid-March 2011 and taken from the TARP disclosure statements  Barack Obama on TARP


A little perspective on the history and original purpose of TARP and President Obama's use and misuse of TARP 2 for GM, as an example. The Democrats caused the economic crisis funding the social-justice and class-warfare MEMES for power, called progress. We cannot afford four more years.