TARP … what happened to all of the money?
I don’t know about you, but I haven’t seen or heard about much relief in the credit crunch since more than 600 banks received federal bailout money. So, who are all of those lucky borrowers that are benefiting from the bailout funds? In my observation, banks are only making loans to people who don’t need the money, or not making loans at all.
TARP, or Troubled Asset Relief Program (I just love all of these new acronyms) was legislated to bail out failing banks throughout the country. Unfortunately, President Obama missed the mark again by not requiring the banks to disclose how they were using the funds. Many of the banks purchased other failing banks with some of the money. So, not only do we (the government) reward the greedy CEOs whose only concern was lining their pockets while making terrible loan decisions, but we also allow them to write off the new banks’ bad debt. Experts estimate that bankers and mortgage lenders siphoned off 9 billion in equity from homeowners!
So, where is the rest of the money that was earmarked to stimulate the credit crisis by making loans? A lot of the money is still in the banks’ coffers. Many banks are holding on to the money in the event the economy fails to improve. Plus, having the cash on their books strengthens their balance sheets.
The Obama administration has proposed cutting executive pay and bonuses for people who received the most bailout money. The administration also wants to create the Consumer Financial Protection Agency, which could establish consumer protection rules and ban business practices deemed unfair, dishonest or abusive, among other things. Just what we need, another government agency to throw in the mix! So, let’s see, if you are the CEO of Bank of America, Obama wants to slash your salary from what, $5,000,000 to 2,000,000? What a great gesture! And let’s not forget about all of those bonuses. Jeez, I might not be able to survive on that 2 million dollar salary alone. And, while the lenders were lining their pockets with huge amounts of cash, you had people like John Thain, the head honcho at Merrill Lynch spending 1.2 million dollars of shareholder money redecorating his office while the company was going in the tank. But, what the heck, he among others, was helping the American people with the dream of home ownership.
In a recent report, U.S. Senator Dick Durbin accused The American Banking Association (ABA) of lobbying against banking reform despite its members receiving billions in federal bailout dollars. The Obama administration’s argument to extend billions of dollars to banks was to help small business owners. Bank of America, the largest bank in Massachusetts and the recipient of more than $45 billion in federal relief, made only 11 Massachusetts SBA 7(a) loans totaling $240,500 in the year ending in September 2008, down from 54 loans totaling $1.6 million in the previous year. Citibank made eight loans totaling $2.4 million through the program in 2008, and one loan for $250,000 through the end of September. Its parent company, Citigroup Inc., accepted about $50 billion in bailout money.
According to writer, Karen Weise (ProPublica), Neil Barofsky, the special inspector general, said the Treasury Department should require banks to report how they use TARP funds. Currently, the Treasury does not require banks to track TARP spending, nor do banks need to keep TARP funds in separate accounts. There are also no consequences for using funds for purposes other than spurring lending.
So, now that the government has created all of this debt that is likely to take generations to pay back, exactly how has all of this bailout money helped the taxpayers? I think we all know the answer to that question.
Mario D’Artagnan is a broker associate with The Jim Fischer Team at Gulf Coast Realty Network, Inc. Mario is a former Florida Real Estate Commission investigator, a former real estate instructor, and a published author. Mario is also a U.S. Air Force veteran. For more information, contact Mr. D’Artagnan at: mariodartagnan@yahoo.com, or call 239-565-4445.