AJ DiCintio

The TARP-Profit Lie
April 12, 2010

After the Obama administration leaked news it is preparing to sell the Citigroup stock the federal government acquired in exchange for bailing out the bank, it didn't take very long for ideological con artists to begin puffing a sales pitch about an $8 billion "profit" that is emblematic of the wonderfully profitable TARP in general.

The Washington Post's David Cho, for instance, hawked the "windfall" as a "validation of the rescue plan adopted by government officials during the height of the financial panic."

And Mr. Cho isn't alone as evidenced by articles such as "Citigroup Bailout Now Looking Good" (stltoday.com), which opens with this blatant example of the propaganda technique called Card-Stacking:

"[TARP] investments have netted the government $15.4 billion from dividends, interest and the sale of bank stock warrants. . ."

After asking us to believe that Bailout, the slimy leech that properly creeped-out a common sense public, has metamorphosed into a beautiful, loveable butterfly called Investment, the piece continues with laughably simplistic testimonials such as the following:

"The banking part of [TARP] is going to be a moneymaker...When you strip away all that emotion, this has turned out to be a good bet." Banking analyst Bert Ely:

"Selling at today's prices would give the government an 18 percent return on its $45 billion investment...Citigroup stands to be our most profitable bank investment, bar none." Finance professor Linus Wilson:

Of course, once the stock sale actually occurs, shills such as those just mentioned will be rudely pushed aside by big shot administration and congressional blowhards who will bark a million half-truths and lies about the billions TARP has made for the American people.

(Not that we ought to express surprise at this latter group's contemptible deceit, for to be a politician or political toady is to spend one's life denying Lincoln's truth that "You can't fool all of the people all of the time.")

So, what are the facts about the TARP "investment"?

Well, it is true that using money borrowed from our great-great-great-grandchildren, the federal government made enormous loans to banks that were brought to ruin by the behavior of selfish, greedy, perfectly stupid executives and their identical twins who go by the name of "Honorable Members of Congress."

However, it is equally true that the very politicians who allowed banks to become casinos that are "too big to fail" and who promoted the "sub-prime mortgage" as the greatest boon to humanity since Prometheus handed humans his glowing gift will be the biggest-mouthed braggarts about the "profit" made on the deal.

(But that is what corrupt, power-grubbing politicians do; and that is why Swift satirized them as depraved, disease-rotted creatures "who never [tell] a truth but with an intent that you should take it for a lie; nor a lie, but with a design that you should take it for a truth.")

Now, in one brief sentence, here's why the "profit" business is nothing but reeking bull:

People in the know who base their assertion of a TARP profit solely on the notion that the government has been repaid $15 billion more than it gave out in loans are consciously spewing a hellish, monstrous lie of omission.

For example, politicians blabbing "profit" conveniently avoid this fact, which the Washington Post's Binyamin Appelbaum reported last December.

"[The Obama administration has] issued an exception to long-standing tax rules for the benefit of Citigroup and a few other companies partially owned by the government. As a result, Citigroup will be allowed to retain billions of dollars worth of tax breaks . . ."

A consequence of this lavish gift, given as Democrats raise taxes on the rest of the nation?

"While the ...administration has said taxpayers are likely to profit from the sale of the Citigroup shares, accounting experts said the lost tax revenue could easily outstrip those profits."

As significant and shocking as those billions in special tax breaks are, they aren't the most important part of the story because the really big money — and the immense, frightening bottom-line cost to the American people — has to do with the fix the Federal Reserve System put in (1) to get the balance sheets of big banks back in order and (2) allow bailed out banks to repay the government.

How does the fix work?

For a Plain English answer to that question, we can thank the Columbia Journalism Review, which uses Citigroup as an example to explain what banks have been doing with money the Federal Reserve has been allowing them to borrow virtually interest free:

"Since one of the main uses of this money was buying government bonds, Citigroup was essentially getting free money from the government. If it borrowed $200 billion at near zero interest and lent it back to the government by buying 10-year Treasury bonds at 3.7 percent interest, then the government was effectively handing Citigroup $7.4 billion a year for nothing."

Let's see, just as Bernanke, Geithner, et al. planned it, the big banks are borrowing for a pittance at the Fed "window" and then using the cash to buy Treasury bonds, thereby fattening their balance sheets and profits with easy, guaranteed money — all the while freezing small business, the major engine of job creation, out of the credit markets.

However, honest folks know that if the fix comes without a cost, Congress will announce tomorrow that it has invented the first successful perpetual motion machine. Therefore, the truth is that it comes with a very big cost. Trouble is, Truth doesn't get along with Expediency, whose dirty, dangerous, wasteful advice is beloved by power-grubbing politicians.

That's why they very conveniently fail to subtract the enormous costs of the Fed's "generous" interest rate policy from TARP "profits," for example, the hit on interest and dividend income that since January, 2009, has been taken by every individual and company that has money in a savings account, a CD, or money market fund.

To arrive at this mammoth amount of money, one need not have a degree in finance.

In fact, all that is necessary is knowledge of simple arithmetic and use of the Internet to research easily available data about sums held in bank time deposits (CD's, for example), retail money market funds (the kind used by ordinary folks), institutional money market funds (where wealthy individuals, corporations, and other entities park big bucks), the average return of these financial vehicles between 2000-2008, and their average return since 1/1/09.

With that data and a little math, this author discovered that in calendar 2009 alone, the American public "lost" at least $70 billion in interest and dividend income on $1.4 trillion held in CD's, $1 trillion in retail MMF's, and $2.5 to $3.0 trillion in institutional MMF's.

In addition to money that we know the federal government has robbed from Peter (the people) to pay Paul (the banks), there is the possibility that the Fed's Fantastic Money Pump will cause astonishing amounts of wealth to be lost in the future, for example, by the remorseless, wealth-sucking maelstrom that is always set spinning in its awful, corrective motion by the bursting of a presumed Infinitely Expansive Bubble.

As reported by CNBC, the learned and common sense Thomas Hoenig, President of the Kansas City Federal Reserve Bank, put the frightening possibility this way:

"I am confident that holding rates down at artificially low levels over extended periods encourages bubbles, because it encourages debt over equity and consumption over savings ...While we may not know where the bubble will emerge, these conditions left unchanged will invite a credit boom and, inevitably, a bust."

Only time will tell whether speculation fueled by cheap money will make a gigantically painful joke of the TARP "profit." But what is no joke is the pain caused by unrestrained speculation and bursting bubbles.

Consider, for example, just the possibility that this summer some of the Fed's cash flood seeps its way into oil markets and causes a rise in the price of gasoline, which has already reached the $3 mark.

Consider, also, that at current U.S. gasoline consumption of 378 million gallons/day, a fifty cent rise in the price of gas sustained for one year will cost Americans $70 billion.

Yes, that effect of cheap money alone will pick 70 billion budget-busting dollars from the pockets of the American people just as surely as it will send the cowardly, hypocritical politicians ultimately responsible for the theft screaming about the "obscene" behavior of oil companies.

 Finally, there is easy money's Worst Case Outcome, which sends shivers through the mind and heart of every American — except Washington's politicians and financial gurus, not a one of whom is capable of recognizing a nuclear-sized sub-prime mortgage bomb forming right under their noses.

The disaster is expressed in the following brief sentence, which owes many thanks to Scotland's most beloved poet.

Because "The best laid schemes o' mice and men/gang aft agley/An' lea'e us nought but grief and pain," the Fed's Fantastic Pump could leave us with nothing but the horrendous suffering caused by runaway inflation.

If such a catastrophe occurs, we will find the "profit" hucksters lying their lies from beneath the biggest rocks they can find, which is where they belong anyway.

Enough, then, about TARP "profits," at least for every American who understands there is no free lunch...for every American who knows that that because government is incapable of producing one penny of wealth, it is the people who produce everything — as well as pay for everything that leftists love to lie government "gives" us.