The Corner

Best Summary of TARP I’ve Yet Seen

Comes from Gregg Easterbrook on, erm, ESPN:

Wasting $2.3 Billion in Federal Money Hardly Seems Worth Mentioning Anymore: Commercial lender CIT Group has filed for bankruptcy after receiving $2.3 billion in taxpayer funds, an ominous indicator since the only justification for showering public money on poorly managed financial firms such as this was to prevent their bankruptcy. The bankruptcy filing means the public’s $2.3 billion is gone. But into whose pockets? Tuesday Morning Quarterback fears it will soon turn out much of the bailout money supposedly “loaned” to financial firms has instead mysteriously disappeared. After all, the whole premise of the TARP programs was to give extremely large amounts of public money to companies with demonstrated track records of mismanaging money, then assume there was no chance whatsoever the companies’ executives would be more concerned with their own paychecks than with the taxpayer.

Scandal update: This past spring, TMQ supposed the worst part of the federal bailout of AIG was that the company’s debts were paid 100 percent — rather than negotiating cents-on-the-dollar discounts, which creditors almost always accept when a debtor faces bankruptcy. “Instead of negotiating a reduction of debt, AIG simply immediately handed over full value. After all, the money was coming from taxpayers’ pockets, and when has anyone cared how much taxpayer money is wasted?” On Monday, a federal audit report made exactly the same point. The report basically says the federal government (in this case, in a bipartisan Republican-Democrat bungle) threw $27 billion in taxpayer funds out the window by not even attempting to negotiate AIG debt reductions. That’s serious billions, about the same as the Medicare physicians’ payment cut Congress is contemplating. But the money did not vanish into the air — rather, it went into the pockets of executives and shareholders at firms such as Goldman Sachs. The decisions to funnel $27 billion in gifts to Wall Street firms and big banks were made by officials who previously had worked for Wall Street firms and big banks, and hope to do so again.

Couldn’t have put it better myself. The revolving door between Wall Street and Washington is something that has to end if public confidence in the nation’s financial affairs is to be restored.

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