[Pen-l] rant on TARP overhaul

[Doug Henwood <dhenwood@xxxxxxxxx>]

<http://doughenwood.wordpress.com/2009/02/09/rant-on-the-tarp-overhaul/>

Rant on the TARP overhaul

Tomorrow will bring the unveiling of the Obama administration’s  
overhaul of the Henry “Hank” Paulson bank bailout, the Troubled Asset  
Relief Program (TARP). [Apply for funds here.] From the leaks  
emerging, it looks like a significant portion of the scheme will  
amount to this: the government will lend money to hedge funds and the  
like at subsidized rates to buy  toxic assets from banks - and the gov  
will guarantee the investors against losses. Evidently, the  
administration thinks the toxic assets are being underpriced by the  
markets. If they’re right, the buyers will make money. If they’re  
wrong, then we all pay.

From the hedgies point of view, it’s all reward, no risk. Even if the  
rewards don’t materialize, what have the hedge funds lost? What the  
public gets out of this is impossible to specify, aside from the risk  
of massive losses.

I hope this isn’t really what will emerge. But if it is, the Obama  
administration will have broken new ground in awfulness. The same  
formula that brought us this mess, an indulgent government encouraging  
reckless operators playing with other people’s money, will be applied  
towards solving it. It makes no damned sense.

Well, maybe it does in the most cynical way. Hedge funders like  
Chicago’s Kenneth Griffin wrote Obama big checks during the campaign  
season. (For some details, see here and here.) Obama’s top economic  
advisor, Larry Summers, worked for a hedge fund (D.E. Shaw) after he  
got fired from Harvard. And no doubt Treasury Secretary Tim Geithner  
would like a multimillion dollar job on Wall Street after he leaves  
public service, just like Robert Rubin did at Citigroup after  
engineering the repeal of Glass-Steagall._______________________________________________
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