..............TheTroubled Asset Relief Program was the product of Hank Paulson Secretary of Treasury for George Bush's Administration.
The Federal Reserve Bank headed by Ben Bernanke in concert with Paulson created the original 85 billion credit facility September 16, 2008 to cover the immediate AIG obligations to 9 major banks who insured mortgage derivative securities with AIG.
AIG insurances never maintained necessary equity capital covering the securities due to absent regulation from the SEC . There never was any liquid capitol to pay if banks claimed a loss.
Very similar to 1929 when 10% money would buy 100% stock purchase on a margin. If stocks increased the investor could sell or leverage the purchase of more stocks. The short answer here is there wasn't any real money in the market. Hence the phrase "a dime holding up a dollar", sooner or later she's gonna blow. All the Dirty Dozen Banks insured with AIG collected money that Paulson and Bernanke guaranteed with TARP Money. TARP money validates heads we win ,tails you loose. The 9 year long malfeasance started in 1999.
Ironically the Glass Steagall Act of 1934 separated investment banking from consumer banking to insure against another market crash depression. The Glass Steagall Act was repealed in 1999 as obsolete. This reopened the door sealed in 1934.
Modern day banking philosophy could prevent another collapse from occurring thus avoiding another depression. This was obliviously not the case we witness today. Had Glass Steagall not been repealed, the collapse would not affect the consumers banking with all losses taken fully by the investment banks only. No 2big2fail!!!
The original TARP 700 billion program was to purchase the toxic assets (stupid loans to ghost insolvent consumers) from AIG and Banks and wholesale back to the public at auction. This would allow the citizen's to purchase the toxic assets (homes) for pennies on the dollar from the government.
Realizing in October the enormous amount of money to be made from the taxpayers. Paulson and cronies changed the rules to allow banks to keep the bad paper and real estate but also syphon off the TARP money until there was a better economy. This allowed the same banks to profit twice, once from the initial scam derivative and also from resales down the pike. The banks are now hoarding the houses as the government attempt to stabilize the housing markets with low down and $8000 dollar tax credits.
The current economic collapse a reflects a perfect storm of theft, beginning with
1. Repeal of Glass Steagall Act
2. Goldman Sachs creations of mortgage derivatives to sell home mortgages in bundles
3. The rating agencies who rated these blindly as AAA.
2. Goldman Sachs creations of mortgage derivatives to sell home mortgages in bundles
3. The rating agencies who rated these blindly as AAA.
4. Stock Brokers who sold the bundles as safe investments.
5.Consumer Banks who blindly granted mortgages ,second mortgages and bad refinance paper to be sold to larger banks for bundling
6. the illegal labor used to build more homes in the false market demand
7. the foolish investors from retirement accounts who bought into the scams.
8. The SEC who down loaded porn while the fires of complacency burned
If any of these items listed above had not occurred the crisis of TARP would not have been needed.
We would still have a poor economy and unemployment would not be significantly lower.
The 22 million criminal illegals would not be here from lack of work. Cities would not have increased their budgets from the runaway appraised property taxes. Fannie Mae and Freddie Mac would be solvent and many people would be saving for that first home purchase rather than foreclosed by the Dirty Dozen Banks
Every Taxpayer should know that while AIG and Goldman had their hat in hand claiming 2big2 fail, not once did they offer to share in the windfall profits of the TARP money that saved their asses from bankruptcy courts. They choose to divide the money between the top theives as bonus booty and hope for a Head Shot on Time Magazine Cover..
Timeline of changes to the initial program
On October 14, 2008, Secretary of the Treasury Paulson and President Bush separately announced revisions in the TARP program. The Treasury announced their intention to buy senior preferred stock and warrants in the nine largest American banks. The shares would qualify as Tier 1 capital and were non-voting shares. To qualify for this program, the Treasury required participating institutions to meet certain criteria, including: "(1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; (2) required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate; (3) prohibition on the financial institution from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and (4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive."[11] The Treasury also bought preferred stock and warrants from hundreds of smaller banks, using the first $250 billion dollars allotted to the program.[12]
The first allocation of the TARP money was primarily used to buy preferred stock, which is similar to debt in that it gets paid before common equity shareholders. This has led some economists to argue that the plan may be ineffective in inducing banks to lend efficiently.[13][14]
On October 14, 2008, Secretary of the Treasury Paulson and President Bush separately announced revisions in the TARP program. The Treasury announced their intention to buy senior preferred stock and warrants in the nine largest American banks. The shares would qualify as Tier 1 capital and were non-voting shares. To qualify for this program, the Treasury required participating institutions to meet certain criteria, including: "(1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; (2) required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate; (3) prohibition on the financial institution from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and (4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive."[11] The Treasury also bought preferred stock and warrants from hundreds of smaller banks, using the first $250 billion dollars allotted to the program.[12]
The first allocation of the TARP money was primarily used to buy preferred stock, which is similar to debt in that it gets paid before common equity shareholders. This has led some economists to argue that the plan may be ineffective in inducing banks to lend efficiently.[13][14]
In the original plan presented by Secretary Paulson, the government would buy troubled (toxic) assets in insolvent banks and then sell them at auction to private investor and/or companies. This plan was scratched when Paulson met with United Kingdom's Prime Minister Gordon Brown who came to the White House for an international summit on the global credit crisis.[citation needed] Prime Minister Brown, in an attempt to mitigate the credit squeeze in England, merely infused capital into banks via preferred stock in order to clean up their balance sheets and, in some economists' view, effectively nationalizing many banks. This plan seemed attractive to Secretary Paulson in that it was relatively easier and seemingly boosted lending more quickly. The first half of the asset purchases may not be effective in getting banks to lend again because they were reluctant to risk lending as before with low lending standards. To make matters worse, overnight lending to other banks came to a relative halt because banks did not trust each other to be prudent with their money.[citation needed]
On November 12, 2008, Secretary of the Treasury Henry Paulson indicated that reviving the securitization market for consumer credit would be a new priority in the second allotment.[15][16]
On November 12, 2008, Secretary of the Treasury Henry Paulson indicated that reviving the securitization market for consumer credit would be a new priority in the second allotment.[15][16]
On December 19, 2008, President Bush used his executive authority to declare that TARP funds may be spent on any program he personally deems necessary to avert the financial crisis. This has allowed President Bush to extend the use of TARP funds to support the auto industry, a move supported by the United Auto Workers.
On December 31, 2008, the Treasury issued a report reviewing Section 102, the Troubled Assets Insurance Financing Fund, also known as the "Asset Guarantee Program." The report indicated that the program would likely not be made "widely available."[17]
On January 15, 2009, the Treasury issued interim final rules for reporting and record keeping requirements under the executive compensation standards of the CPP.[18]
On January 21, 2009, the Treasury announced new regulations regarding disclosure and mitigation of conflicts of interest in its TARP contracting. [19]
On February 5, 2009, the Senate approved changes to the TARP that prohibit firms receiving TARP funds from paying bonuses to their 25 highest-paid employees. The amendment was proposed by Christopher Dodd of Connecticut as an amendment to the $900 billion economic stimulus act yet to be passed.[20]
On February 10, 2009, the newly confirmed Secretary of the Treasury Timothy Geithner outlined his plan to use the $300 billion or so dollars remaining in the TARP funds. He intended to use $50 billion for foreclosure mitigation and use the rest to help fund private investors to buy toxic assets from banks. Nevertheless, this highly anticipated speech coincided with a nearly 5 percent drop in the S&P 500 and was criticized for being short on details.[2
1]
On March 23, 2009, U.S. Treasury Secretary Timothy Geithner announced a Public-Private Investment Program (P-PIP) to buy toxic assets from banks' balance sheets. The major stock market indexes in the United States rallied on the day of the announcement rising by over six percent with the shares of bank stocks leading the way.[22] P-PIP has two primary programs. The Legacy Loans Program will attempt to buy residential loans from bank's balance sheets. The FDIC will provide non-recourse loan guarantees for up to 85 percent of the purchase price of legacy loans. Private sector asset managers and the U.S. Treasury will provide the remaining assets. The second program is called the legacy securities program, which will buy mortgage backed securities (RMBS) that were originally rated AAA and commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) which are rated AAA. The funds will come in many instances in equal parts from the U.S. Treasury's TARP monies, private investors, and from loans from the Federal Reserve's Term Asset Lending Facility (TALF). The initial size of the Public Private Investment Partnership is projected to be $500 billion.[23] Economist and Nobel Prize winner Paul Krugman has been very critical of this program arguing the non-recourse loans lead to a hidden subsidy that will be split by asset managers, banks' shareholders and creditors.[24] Banking analyst Meridith Whitney argues that banks will not sell bad assets at fair market values because they are reluctant to take asset write downs.[25] Removing toxic assets would also reduce the volatility of banks' stock prices. This lost volatility will hurt the stock price of distressed banks. Therefore, such banks will only sell toxic assets at above market prices.[26]
On March 23, 2009, U.S. Treasury Secretary Timothy Geithner announced a Public-Private Investment Program (P-PIP) to buy toxic assets from banks' balance sheets. The major stock market indexes in the United States rallied on the day of the announcement rising by over six percent with the shares of bank stocks leading the way.[22] P-PIP has two primary programs. The Legacy Loans Program will attempt to buy residential loans from bank's balance sheets. The FDIC will provide non-recourse loan guarantees for up to 85 percent of the purchase price of legacy loans. Private sector asset managers and the U.S. Treasury will provide the remaining assets. The second program is called the legacy securities program, which will buy mortgage backed securities (RMBS) that were originally rated AAA and commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) which are rated AAA. The funds will come in many instances in equal parts from the U.S. Treasury's TARP monies, private investors, and from loans from the Federal Reserve's Term Asset Lending Facility (TALF). The initial size of the Public Private Investment Partnership is projected to be $500 billion.[23] Economist and Nobel Prize winner Paul Krugman has been very critical of this program arguing the non-recourse loans lead to a hidden subsidy that will be split by asset managers, banks' shareholders and creditors.[24] Banking analyst Meridith Whitney argues that banks will not sell bad assets at fair market values because they are reluctant to take asset write downs.[25] Removing toxic assets would also reduce the volatility of banks' stock prices. This lost volatility will hurt the stock price of distressed banks. Therefore, such banks will only sell toxic assets at above market prices.[26]
On April 19, the Obama administration outlined the conversion of Banks Bailouts to Equity Share.[27]
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