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In testimony before the Senate Banking Committee, Neil Barofsky, the special inspector general for TARP (the Troubled Asset Relief Program or as we call it around here at Off the Street, Taxpayers Assume Reaming Position) said the program provided an unfair advantage to the big banks (Via the WSJ):
That ranks right up there with Charlie Sheen likes to party on a list of blindingly obvious things. It also isn't anything new. Banks have always occupied a preferred position in the structure of our economy. No other industry has a lender of last resort, the Fed, that provides credit when no one else will at rates not available to other businesses or individuals. TARP and the other emergency facilities introduced by the Fed during the financial crisis even loosened the requirement that the banks provide only high quality collateral for the loans. The so called Greenspan put is nothing more than acknowledgment by the market that the Fed stands ready to lower short term rates at any hint of stress in the banking system.
Savers are routinely thrown under the bus by the Fed so banks can rebuild their capital through the wonders of a steep yield curve. It was done during the S&L crisis of the late 80s, the Asian crisis of the late 90s, the dot com bust of the early '00s and now the housing bust. Savers and investors are left to chase yield in lower quality investments while the banks get to borrow cheaply, buy Treasuries and profit from the spread.
All TARP did was provide a special advantage to those banks large enough to buy political influence. Systemic risk is the stated justification for the Too Big To Fail policy but that is a theory in search of evidence. It is hard to test the theory since we never allow big banks to fail. We have bailed out Citibank/group three times in my adult life. If we had let them fail back in the early 80s when they got in trouble lending to Mexico, we wouldn't have been bailing them out in 2008. Bad banks are no different than any other badly run business. Saving them just rewards failure and encourages risky behavior in the future. Too big to fail needs to end.
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