Bloomberg reports the top TARP inspector will testify that federal financial system bailout liabilities could be as high as $24 trillion, drastically surpassing the $700 billion specifically authorized under the actual TARP legislation. Of course, the Treasury is defending their involvement, stressing that these numbers are theoretical maximums rather than spent dollars. Assuming the assets behind the banks’ balance sheets are worth more than zero, the actual cost to tax payers should be significantly lower.
Fear and Foolishness
In time, it is likely that the TARP program and associated financial bailouts will be viewed as similar to the war in Iraq: a series of expensive lies rushed through in a climate of public fear. The official line of supporters at the time was that a failure to act decisively would result in some sort of apocalypse. Instead of asking if we had gone too far, people were still asking if we had gone far enough. Well, $24 trillion later, how is your view of the economy? Mine still sucks…
Congress is a Small Fish
Essential to understanding this story is recognizing which government institutions are shelling out the cash. Congress specifically authorized $700 billion dollars, but much larger guarantees and asset insurance has been provided by the Federal Reserve and the Treasury Department. You’d think decisions about our dollars would be made by our elected representatives, but they’ve outsourced their responsibilities to opaque and insulated departments.
There Goes the Neighborhood
The only thing that seems to have been accomplished was keeping the banks who owned all the bad mortgages in business. And that’s good right? I mean, who else would foreclose on my neighbors when they lost their jobs? On my short street alone, we’ve got two homes that have so long been abandoned by their bank owners that they’ve been stripped of everything valuable and slated for demolition. Another one must be getting close to worthless: They’re asking $29,000 for a 2 bedroom.
This surge in vacancy won’t be limited to my subprime hood, next year will be the collapse of the jumbos and ARMs. Expect the next wave of carnage to wash up in the $500,000 housing range.
In the meantime, I’m trying to figure out how much it will cost me to buy the street. Its in a really nice location, despite the property owners’ (banks’) lack of upkeep.