TARP Sucks

TARP. The Troubled Asset Relief Program. I have made no secret of my feelings for how crappy this program was, but right now a quick look at the market -- and the financial sector in particular -- make it I think very obvious why TARP has been an abject and utter failure.

The TARP plan -- originally named as such because it was supposed to be used to buy up U.S. banks' troubled mortgage assets, before that idea was completely scrapped in favor of making equity investments in those banks instead -- cost $750 billion, not counting the extra $100 billion in bullshit porky tax cuts that had to be included to get the House to approve the revised bill after they initially rejected it. Seven hundred fifty billion dollars. 750 Billion!! That 750 billion dollars has to come from somewhere, most notably from ourselves and our children, either in the form of higher taxes, decreased services, or most likely, both, for years and years to come. Bush demanded it, Paulson demanded it, Bernanke demanded it. McCain voted for it, Obama voted for it, my representative and both of my state's senators voted for it as well.

Why did all these people vote in favor of the TARP plan? Because the $750 billion was supposed to be money well spent. The idea was that spending $750 billion to directly bail out the banks of this country now was going to make us far more than that in helping to save these troubled banks and our troubled banking system, help our economy avoid spiralling into the abyss as our esteemed president panickedly told us on tv that one night. Somehow, the problems facing our country a few months back were so severe that throwing $750 billion at it up front was going to be less costly than the fallout if we didn't help those banks with the TARP plan right away.

And look at what has happened. At current levels, the S&P 500 index alone, representing the 500 largest companies trading in America, has shed about $1 trillion in market capitalization just since the passage of TARP in early October. And that doesn't even include the approximately 10% losses from September while TARP was being hammered out. One trillion dollars -- that is a thousand billion, or already a good 33% more than the entire cost of TARP. And of that 1 trillion in market value lost in the stock market, north of $600 billion of the losses come straight out of the financial sector. So we spent $750 billion to pump money directly into banks, the very same banks which have now lost close to $620 billion of market capitalization alone just since early October, and more like $700 billion since September when TARP was first envisioned.

What's more, the $25 billion investment given to Citigroup as part of TARP, formerly the largest financial institution in the world as recently as mid-2006, obviously didn't do shiat to stabilize things at the bank. Citi execs simply took too many risks, were too reckless and imprudent, and eventually by late 2008 there was nothing that could be done to save the bank, which spiralled into oblivion late in the year, seeing its stock plunge to around $3 a share -- losing more than $250 billion in market value alone from its peak -- until the government had to step in with another $30 billion or so of cash, plus a government guarantee to assume the risk on upwards of $270 billion of toxic assets on Citi's books. Citi shares of course jumped bigtime on the news of their own personal $300 billion extra-TARP bailout, but now on Thursday here is Citi sitting right back down in the mid $3s. Nice bailout. Twice.

And now the latest victim is troubled Bank of America, another one of these "financial supermarkets" whose leadership saw fit to purchase mortgage lender Countrywide Financial about 18 months ago right at the peak of the credit market bubble, and then bought troubled brokerage Merrill Lynch back in September at a firesale just hours before Merrill itself would have had to declare bankruptcy. Bank of America management has been on a shopping spree for a long time for risky, troubled assets that it simply had no business taking on, and no plan or ability whatsoever to manage once they became part of the Bank of America fold. The result, even with $25 billion in TARP money they received over the past couple of months? On Thursday comes word that the government is preparing an additional Citi-style personal bailout for Bank of America, involving once again hundreds of billions of extra dollars in asset guarantees to help it be able to continue to survive, news that is sending its shares plunging more than 25% today alone to its lowest level in 18 years.

It is obvious -- and let's focus on that word for a minute -- it is obvious, that TARP has been a complete and utter failure. Sure, the very existence of the TARP bill might have helped to stabilize the markets in the near-term back in Black October. But any even cursory study of history shows that the market would have stabilized itself, given enough time. Maybe lower than it did in October / November, maybe not, who knows. But either way, prices would have eventually gotten low enough, or the situation with the world and the national economy would have gotten clear enough, that sooner or later investors would have realized stocks were cheap enough to start buying them again. It's worked this way for more than a hundred years, and it never fails. Ever. Not even through the Great Depression did that endless and inevitable cycle of pushing stocks lower until they eventually find their own bottom fail to work. So we gave about $50 billion of our own money to infuse the two largest banks of this country directly with cash as part of the TARP program, and the result has been the failure or near-failure of each of those banks up until just recently even despite the TARP funds given to them, showing how little effectiveness the TARP plan really has on an individual company level. And on a macro level, we spent $750 billion to prop up the financial services sector as a whole, which has now lost around $700 billion in market cap alone just since TARP was first thought up in that brilliant mind of investment banker and former Goldman Sachs CEO Henry Paulson. And this isn't even counting the financial effects of the huge slide in the economy that has resulted since the TARP plan was put into place, because TARP in the end did absolutely nothing to stem the economic slowdown in this country either. Who knows how many hundreds of billions of dollars the total economy has lost in the past few months to go on top of the $1 trillion + already lost in just the stock market alone.

Spend $750 billion to "save our banks and save our economy", and then lose a trillion dollars in market value plus probably another trillion in economic value within just months of that expenditure, while our nation's two largest banks still need additional massive cash infusions and hundreds of billions of dollars of risk taken off of their balance sheets in order to avoid complete failure even despite the $750 billion TARP plan. Does that sound like a good investment to you?