TARP Chairman Calls Bailouts a Sham

[FlyingTiger]

This guy got money from TARP and he's still telling everyone that the bailouts are a joke. The big banks are stealing trillions from us, and the Treasury is driving the getaway car.

So I very much look forward to seeing if the aforementioned "some" pay any attention to Mark Patterson, chairman of TARP beneficiary MatlinPatterson, who publicly declared yesterday that the bailouts are a "sham," that the big banks are all "insolvent," and that the financial industry is "deluding itself." I'll post some after the jump, because there's a lot that you should hear (read) straight from the horse's mouth, and, trust me, you want to see all of it. Take it away, Mark:

Mr Patterson said the US Treasury is out of its depth and seems to be trying to put off drastic action by pretending that the banking system is still viable.

“It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn (£66bn) of the $700bn TARP funds. They think they’re doing this for the greater good of society,” he said, speaking at the Qatar Global Investment Forum.

http://www.meltingpotproject.com/mpp/2009/05/tarp-recipient-confesses-bailouts-a-sham.html#more">Link to full article

[mule_train]

1. stunning

the entire public called them a theft

the chairman of them now calls them a theft

quite possibly, they are a theft

biggest one of all time

the old saying is right

'if you're going to steal, steal big'

[FiveGoodMen]

2. But now that we've got our man in the White House, he'll put a stop to that!

[TheWatcher]

14. With who, Geithner?

:rofl:

[unblock]

3. well of course they're basically insolvent. they wouldn't need tarp funds otherwise!

the whole point was to give them enough money to cover their insolvency, or at least to buy them time and credibility to raise additional capital to cover the the full extent of their insolvency.

duh.

it's not exactly a sham, it's pretty much the stated purpose.

[FlyingTiger]

9. Completely untrue. The money was provided in case they were ILLIQUID.

There's a big, BIG difference between "insolvent" and "illiquid." That's why the Fed/Treasury have been calling this a "liquidity crisis," not a "solvency crisis." For a quick explanation as to what the difference is, see this:

http://www.calculatedriskblog.com/2009/04/bank-balance-sheet-liquidity-and.html

Part two of that analysis deals more with solvency.

[unblock]

11. wrong. if the the problem were only illiquidity, they would have solved it differently

if the sole problem were illiquidity, then they would have solved it by leaving the banks be and simply creating new government-sponsored entities a la gnma, fnma (originally), etc. go back to some the reasons why those entities were created in the first place. or played games with capital requirements and other rules.

no, the reason why the felt compelled to massively shore up the existing bank balance sheets and in effect backstop their losses was to prevent them from going belly up. they were worried that bank failures would lead to unforseen knock-on effects, the way lehman's failure brought down aig. after that, they decided that they couldn't predict the aftermath of a bank failure and so it was deemed better to prevent any more.

i suppose you do have to read between the lines a bit, they're obviously not directly saying, "hey, the banks are screwed without our help," because they are trying to instill confidence in the banking system, but it's pretty obvious if you stop and think about it. but it's obvious from the plans and the actions what they believe the problem and the solution to be. and they've said as much, they're just not screaming it from the hilltops. illiquidity is a more immediate concern to the average loan-seeker, so that's what gets more of the headlines.

[FlyingTiger]

12. Half true, half not.

Is a big part of the government's multiple efforts to shore up the banks the desire to instill confidence in our banking system? Absolutely. Do they want to prevent the banks from going belly up? Of course. But you can go belly up due to being illiquid. Is all of this still all based on this being a liquidity crisis? Yes, which is why you've heard that phrase come directly out of the mouths of Bernanke, Paulson, and Geithner roughly eleventy billion times. How many times have you heard "solvency crisis"? Zero, unless they were refuting the problem being solvency.

Speaking of refutations, the easiest way to demonstrate that this is, in fact, a solvency crisis is to look for refutations of the notion that if the big banks were asked to actually acknowledge their losses on all real estate-related assets, they would become insolvent instantly. Go ahead. Find me an example of Bernanke or Geithner refuting that. It'll be pretty tough, because they won't. If the banks play in the real world, they're all underwater. Period. And they're so very far underwater that not even the US government can change that.

[unblock]

13. the whole point of the "stress test" was to figure out how much they needed to remain solvent

under a (carefully designed) stressed scenario. you don't do a stress test like that, or demand banks raise more capital to handle such a scenario, if you're not convinced they'd go under were such an event to occur.

maybe i'm being to harsh on the general public. as a financial profession, it's patently obvious that solvency has been an issue for some time. the term "liquidity crisis" has no doubt stuck in part because it's more politically palatable and in part for historical reasons -- the liquidity crisis started around august 2007, at a time when it was not at obvious that many banks were underwater.

[FlyingTiger]

15. The "stress tests" are provably laughable.

The "worst-case" scenarios used in the "tests" involved an unemployment peak that we've already surpassed and a housing bottom that we've already broken through. The data used in the tests came from the banks themselves. I wish I was making this up. The Treasury and Fed have publicly stated that they got most of the numbers they used to run their simulations by asking the banks for them. If you think that sort of information transfer was on the up-and-up, I've got a lovely bridge that I can't wait to sell you.

You say that you're a financial professional, so you should be able to riddle me this - if the banks were solvent in their current state, why would the Treasury/Fed continue to pursue the PPIP, a plan that exists for the sole purpose of spending a trillion taxpayer dollars that don't exist and therefore have to be borrowed at interest in order to provide artificially high bids for the banks' toxic assets, in order to remove said assets from the banks' balance sheets? If what you say is true, Geithner should have already announced that the PPIP is a huge, unnecessary cost for the federal government at a time when the country is deeper in debt than it has been since WWII. So why hasn't he?

[bvar22]

4. A "Sham" you say?

NOW we have Your Children’s Money too !!!
And there is not a fucking thing you can do about it!
Now THIS is “Post-Partisanship” !
Better get used to it!!
Hahahahahahahahaha!

[alterfurz]

5. simply "Bananas"!

"This is a travesty. It's a travesty of a mockery of a sham. More than that--it's a travesty of a mockery of a sham of a mockery of a travesty of two mockeries of a sham!"

[javelin]

6. This is my first posting, I am a new member.

Iam a senior citizen on Social Security pension and very very angry at what is going on in our government. How long is the American public going to put up with this? Hankiepoo Paulson said our world would collapse in 48 hours if he didn't get a trillion dollars for welfare to the banks and insurance companies. What a crock !!! Then the Democrats jumped on the bank wagon and said it was a great idea. Obama, Pelosi, and Franks said it was a marvelous idea to steal a trillion dollars from the taxpayers. Then that other bald headed creep Ben Bernacke slashed the interest rate to ZERO.

We are going to have a total collapse of the economy just as bad as 1933 and I think it will be much much worse. Hello Wimar Republic !!! It will take a wheel barrow full of dollars to buy a loaf of bread, it is coming and coming very soon.

And the American public just sits there doing nothing.

[AnneD]

8. Amen brother amen...

How many sticks of dynamite is it going to take to get people up off their asses. I'm so mad I can't spit straight.

[Cowpunk]

7. Good post. Bad title.

"TARP Chairman" is a little misleading, doncha think?

[FlyingTiger]

10. Yeah, I should have phrased that differently. n/t