The Case of the Missing $700 Billion

Dennis Miller July 11, 2013

Where did the money go? Misplacing $700 billion is not like losing a $10 bill in your ski jacket, only to find it again the following winter. Yet that’s the attitude Timothy Geithner and nearly everyone in the federal government has taken toward the $700 billion in taxpayer money distributed to US banks through the Troubled Asset Relief Program (TARP).

In a recent article he penned, Bill Bonner recounts asking Neil Barofsky, the TARP inspector general from 2008 to 2011, what the banks did with all that money. It was supposed to stimulate the economy, which it did not, so what the heck happened? Well, apparently Barofsky also wanted to know where the money had gone. He mentioned to Bonner:

“It was amazing to me that no one knew. We gave it to the banks. But no one knew what they did with it. I proposed to Tim Geithner that we find out. He was outraged. He cursed me out, using the F-word. He said it would bring the whole banking system down, if I asked. …

“What did they do with the money? They were supposed to increase lending to help bring about a recovery. None of them did that. Instead, they used it to repay each other’s loans. In other words, they used it to reduce the amount of credit available… not increase it. And they bought US agency bonds… just as you’d expect. And they paid out their bonuses.”

Barofsky’s comments confirm what most of us already know: the banks used $700 billion in taxpayer money to cover their own hides. And they’ve done a mighty good job of it. According to a Los Angeles Times article, US banks made a record-setting $40.3 billion in profits during the first quarter of 2013, surpassing the last record set over six years ago. I suspect those record-setting profits funded more than a few sizable bonuses, courtesy of US taxpayers (hey, anything we can do to help pay for their yachts).

Trouble with the Truth

Let me spell out the truth—a concept Geithner has a hard time with:

1.   Banks took $700 billion in bailout money and paid off their high-interest debt. That included FDIC-insured CDs, which they called in, leaving seniors and savers without many viable alternatives for safe investing.

2.   Banks stopped lending to the public because they found a better deal. If you could take billions of dollars from the government and lend it back to them by buying US bonds, wouldn’t you do the same thing?

3.   Banks turned a big profit and paid out handsome bonuses to their higher-ups.

4.   By reducing interest rates in the public sector, the Treasury reduced the cost of its own massive debt. For every 1% reduction in interest rates, the government saves over $150 billion annually in interest.

5.   Politicians love what the Fed is doing. Ten-year Treasuries just moved above a 2% interest rate at the end of May. Higher rates would increase the federal deficit, so Washington wins at the expense of seniors and savers who can no longer count on adequate interest income from safe investments.

Perhaps I am the ultimate cynic; I just want my peers to know that none of this is going to change anytime soon. Even if we mange to elect honest folks with sound judgment, as soon as they arrive in Washington D.C., honesty and good judgment go out the window. That’s why we should focus on things we can control, like where we invest our money.

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