Saturday, December 19, 2009

The TARP Hoodwink

Here is a bit of pure speculation on my part. When Congress came to the aid of the banks with the TARP money, things were not quite as they appeared. At that time, bank accounts were Federally insured for 100K. A person with 20 million dollars in cash, would need 200 banks to deposit the cash for the FDIC insurance coverage. Most likely the 20 million was in one bank. What we could have been looking at here was the flight of big money out of the banks, not the small deposits.

Back in the 1980’s we had a bank called Continental Illinois that the FDIC deemed too big to fail. Here is an interesting link to that fiasco: Continental Illinois and “Too Big to Fail.” The Fed ended up covering all deposits to stem the run on the bank. Of course they ended up owning it in the end.

The FDIC has no problem coming to the aid of the banks. AIG (a non bank) was another story, a black hole for over 200 billion in TARP money. Now the banks have stabilized and the word is out, all of the banks "Too Big to Fail" are FDIC insured for ANY amount, no matter how large. The big money is returning back to the banks. The banks no longer need the TARP money and can return it to the Fed. This eliminates the TARP restrictions on large bank employee bonuses.

The banks are thumbing their noses at the FDIC, look at Citigroup’s stock offering the other day to raise money to pay off their TARP debt. The Fed previously gave them 25 billion dollars in return for stock valued at $3.25 a share. Then Citigroup goes out and issues 20 billion more of stock to pay off the TARP loan at $3.15 a share. What the government should have done was dump their shares before the Citigroup offering. Not only does the government now have a smaller slice of Citigroup, it is worth less on top of it. Doesn’t it feel like the Fed just got "had" by a used car salesman named “Slick?”

The whole thing smacks of a Fly-By-Night-Airline. Imagine your airplane flight landing at an airport midway to the destination and then the pilot passes the hat among the passengers for gas money? Here's a bank selling stock, to pay off a TARP loan! Is it because they’re broke????

"Too big to fail," is the Modus operandi for the Fed and the players know the rules to that game. The bankers get their bonuses and they did it right under our noses; irritating to say the least.


Anonymous said...


I just wonder when the inflation is going to start to pay for all this......

rob in ns

Anonymous said...

It is downright criminal what The Fed has done (and who knows what they've done that we don't know about).

US banks are using the USD for carry trade now... borrow super cheap, put the money into higher yielding treasuries... take the profit spread. This is how The Fed is allowing banks to recapitalize if you didn't realize it. The Fed knows, as well as the banks, that another nasty ill wind is going to blow (in the form of res and comm real estate defaults, credit card and auto defaults, school loan defaults, mortgage backed securities and other toxic securitizations, etc.) and the banks need lots of money (and will continue to not lend) in preparation for the coming storm.

The Fed, Congress, the Treasury and the Obama administration all favor the bankers and Wall St.

We the people and Main St. can go jump in a lake.

Cronyism, Plutocracy, Kleptocracy are the operative words.

If I was in charge there would be a lot of people going to jail in both the public and private sectors. There would be a complete restructuring of our financial system and our government.

FDIC, SEC, The Fed, were all born out of a different time. The Fed and central banking system is almost 100 years old. The others are close to 70 years old. We have a different economy now and are totally in a different place. These institutions are obsolete and unworkable (they've had terrible unintended consequences).

We need real leaders, real change.


Ohio Banker said...

The average American doesn't understand what the Banksters and Washington Mafioso have been doing:

Government makes the public think the banks are near collapse.

Government gives the banks billions basicly INTEREST FREE.

Banks don't lend it out to Americans or pay depositers better yield. Instead they buy US Treasuries.

The Banksters make a profit on the Treasury yields. The Government is able to float more and more Treasuries so they have more and more money to spend. To the government Money = Power.

The average American gets NOTHING.

Jim in San Marcos said...

Hi Rob

I see it a little different "I wonder when WE are going to start to pay for all of this..." Of course, that could be what you meant, inflation is a tax-- So your statement could be considered politically correct but not taxpayer obvious.

Jim in San Marcos said...


I think the real mistake a majority of Americans are making, is assuming that the people in charge know what they are doing. They don't!

At times I wonder why it is so easy for us to see.

The banks are no longer contributing to the mess, but the government is still cranking printing presses.

Something has to give, and it will. I'm guessing that it will be interest rates. A lot of people may be shorting the dollar and buying gold. If interest rates were to jump to 16% the gold market could implode. It wouldn't mean that the gold buyers were wrong, but rather, they were just a little off in their timing.

We know the end game, a drastically devalued dollar--The "When?" is the real question.

Thank you for your comments.

Jim in San Marcos said...

Hi Ohio Banker

Like AIM suggested, we are not even sure what they have done.

But lets rewrite your last line, "The average American gets NOTHING." It has more impact if you word it this way: "The person with nothing, (broke) loses nothing. If you have savings (etc) you have to be on the losing end of the deal." It could be very painful to those of us that played by the rules.

The way I see it,by the time this comes to a head, most of us will have nothing left to lose. We'll get to start over again. How exciting!

Thank you for your comments.

Merry Christmas All

Anonymous said...

Not to change the subject (altho it is related because The Fed caused this), but look at this...

If this is correct, those option-ARMs are going to reset earlier than expected. This tsunami will hit anytime within the next 6-18 months. Unless there is another terrorist retaliation first, this foreclosure tsunami will probably be the next crisis that blows the cover off the false veneer or "recovery" and sinks us into deeper depression than we are already in (don't forget that there will be continuing residential and commercial foreclosures, credit card/auto/student defaults, bank failures, more rising unemployment, etc. in the interim before this tsunami hits.

We are in for a real shit storm over these next few years.

I predict Obama will be a one term president.


Anonymous said...


The best line in a movie in last twenty years is from a few good men where Jack screams at Tom "You can't handle the truth".. Problem is the majority will end up demanding the wrong solution to a crisis they denied. I worry that we then end up with a tyrant running the show.

Jim in San Marcos said...


Most of us bloggers could probably be accused of writing too much on this second wave. It is starting and will be big. A lot of it could probably be assimilated like the first wave. I don't think that the banks have much involvement in residential real estate. They write, package, and sell the product to investors and do it over and over again. I do think that property prices will drop because of it.

I think the real key to the banking mess that won't go away are the commercial loans banks made for construction, those are usually 2 to 5 years and call for refinancing to a buyer, which is very unlikely to happen.

The consumer is definitely in a bind. It's aggravating to wait for someone in line to pay for a pack of smokes with change. Counting out $6.50 in quarters nickles and dimes takes a while.

As for your statement about Obama being a one term president, I wonder about that. I thought the same thing about Clinton. I was listening to the House of Commons on PBS last week and someone suggested that in order to vote, you should have to pay taxes. I think that here in the States, we are beginning to see a voter that pays nothing into the system, but gets large returns. This is pretty much confiscation from the rich distributed to the voter that doesn't pay taxes. So if you have nothing and pay no taxes, vote for Obama, you'll get something back.

As for real leaders, we haven't had any since Nixon. All we get are presidents that are politically correct and tell us what we want to hear (that's just a personal opinion).

Take care

Jim in San Marcos said...

Hi Anon 3:31

Look at it a different way. What is truth? You won't find it with government, it is impossible.

There are four words that are extremely dangerous to use, Truth and non Truth, Right and Wrong. The value of these words changes with the user.

While in Viet Nam, I constantly heard the statement "The war is wrong." My answer, show me a war that is right! It can't be done! The winner is right the looser is wrong. Neat concept sounds a bit political doesn't it?

I think that you are right, we will get the tyrant-- people will be fed up with "democracy"(socialism).

Thank you for your comments.

Jim in San Marcos said...

Some Christmas Tips:

Microsoft has a free anti virus program out for XP and Windows7 (and those unfortunate enough to have Vista) here is a

And if you do a lot of comments on blogs, there is an excellent Spell check program. Link Highlight the text, rt click and it will correct it for you.

And a tip for those that get a large cardboard box at Christmas (TV, Washer or dryer) and have small kids. Cut a hole in in making it look like a pretend television, they'll have fun for hours.

Enjoy and Merry Christmas to All

Anonymous said...

In the spirit of 'Peace on Earth' I thought I would share this thought.
In the future, the people will have to power to destroy their governments, in a matter of minutes. In this future world, the only Governments that will survive are those that have full support of the people, all the time. Therefore, Governments will shrink drastically, eliminating all 'controversial' branches, just to survive. Basic services, and infrastructure, will survive. The FED certainly will not.

AIM said...

Merry Christmas to Jim and all of his readers.

I imagine that all of this nonsense in our government and economy pushes the body politic into an agressive state of reform and accountability. There will be better times ahead once we work through all the excess, corruption and obsolete systems and reconfigure our nation.

We'll all come through this storm and be better off for it by getting back to basics and sanity.

Keep imagining Peace & Prosperity.


Cracker said...

The great depression of 2006 is averted by being converted into a long lasting recession. The total damage is the same - just spread out over many years. In Accounting language, this depression is being depreciated instead of being expensed.

The worst is behind us, in my opinion, but the bad is a constant companion. We just have to adjust our mindset to maintain vigilance over a longer period.

Practice frugality. Watch who you marry. Keep good hygiene to avoid infections. Eat a balanced diet and exercise some. Lose weight. These good ideas will help us to survive, and even prosper, in this recession of a generation.

Anonymous said...

Diagree heartily Cracker.
The worst is yet to come.
Government won't be able to hold it off much longer. Their tool box is empty. They'll continue to use their old tactics of stimulus, bailout, etc. but to no avail. The deleveraging will be overwhelming and The Fed could never expand the money supply enough to counteract it.
Our economic structure and standard of living is coming down. You can imagine all of the negatives that will go along with that for our American life style.