Saturday, September 12, 2009

How to waste 6,500 words

As demonstrated by Donald Barlett and James Steele of Vanity Fair. They devote 6,500 words to the (shocking!) revelation that no one knows exactly what each bank did with its TARP money, because Treasury hasn't been "tracing" TARP funds. Apparently no one pulled Barlett and Steele aside and explained to them that money is fungible—once TARP money is credited to a bank's Federal Reserve account, it becomes indistinguishable from the rest of the money the bank has in that account. When you take $20 out of the ATM, do you know exactly which of your deposits the $20 came from? No, because money is fungible. Treasury could have asked the banks what they did that, without TARP, they would not have, but since there's no way to verify a bank's claim, all the banks would've claimed that they spent their TARP money on apple pie and American flags. So after 6,500 words, the basic conclusion is: Treasury injected a lot of money into a lot of banks, and a handful of those banks have business practices that, while not against the law, you may find unsavory.


Don said...

Here's a comment I posted on Alphaville about the GAO report on TARP:

"Don the libertarian Democrat Dec 3 03:22
"We spoke with representatives of the eight large institutions that initially received funds under CPP, and they told us that their institutions intended to use the funds in a manner consistent with the goals of CPP. Generally, the institutions stated that CPP capital would not be viewed any differently from their other capital—that is, the additional capital would be used to strengthen their capital bases, make business investments and acquisitions, and lend to individuals and businesses. With the exception of two institutions, institution officials noted that money is fungible and that they did not intend to track or report CPP capital separately. We will continue to monitor the activities of these institutions as well as the plans of others in future reports as well as any oversight provided by Treasury and its agents or the regulators. The banking regulators indicated that they had not yet developed any additional supervisory steps, such as requiring more frequent provision of certain call report data for participating institutions, to monitor participating institutions’ activities.26 For example, it is unclear whether Treasury plans to leverage bank regulators, which in the case of the largest institutions have bank examiners on site, to conduct any oversight or monitoring related to CPP requirements. However, unless Treasury does additional monitoring and regular reporting, Treasury’s ability to help ensure an appropriate level of accountability and transparency will be limited."

CPP=Capital Purchase Program

How could you do anything other than an aggregate monitoring given that you don't know exactly what the money was used for?

Let's be real: The money has been given to the banks to use as they see fit. The government has no real control over it, and aggregate monitoring, presumably, will just tell you if someone is lagging in lending in certain areas, etc. But so what? There's no going back.

The only real question is how well these banks do for themselves. We sure don't want them losing a lot of money. That's why this program doesn't work. On the one hand,the bank's interests ( solvency and profits ) and the government's interests ( please loan now ) aren't necessarily the same. On the other hand, since we've loaned them a bunch of cash, we want them focusing on their bottom line so we don't lose money on the deal. There is no one set of agreed upon standards to judge the program on. Given that, the next report won't be much clearer, if at all."

Did anybody else read that report?

Anonymous said...

l don't know if you ever read these things, but...

I consider you the Mark Twain of finances...Wall Street... whatever, it's a real pleasure reading your blog.

I don't understand much of the concepts. As in:

–adjective Law.
(esp. of goods) being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind.

Good stuff, that. WhatEVER it means, I'm sure you will use it to smite those b______s, hip and thigh.

(um.... what were you doing in the run-up to 2007?)

I will forward your blog to all my friends.... why should I be the only one scratching my head... in the hopes you will gain some adherents who could, unlike my-head-scratching-self, be of some help.

Like your wife!! Sounds like a dear and I strongly suggest you pay attention to not only your blog.

Again, thanks for making the utterly, completely unfathomable so interesting.

Ron Edge:

Anonymous said...

most significant
Diablo 3 Items organizations have got bank investigators on site, to carryout any kind of oversight or perhaps keeping track of associated with CPP requirements. On the other hand, except Treasury really does additional checking and also standard reporting, Billig WoW Gold Treasury’s chance to help assure the ideal level of answerability along with transparency will likely be minimal.Inch

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