Posts Tagged ‘Financial Crisis’

Morgen Richmond

Inspector General: TARP Has Created a Looming Disaster

by Morgen Richmond

For all the phony talk coming out of the White House this past year about transparency and accountability, there actually is an institution outside of the executive branch which does a pretty darn good job at this most of the time: the Inspector General system. In fact, IG’s may do too good of a job by producing lengthy and meticulously detailed reports, difficult even for politically-attuned readers to digest, and which usually do not contain the types of partisan zingers that attract a lot of media attention.

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Yesterday the Inspector General for the Troubled Asset Relief Program (SIGTARP) released their Quarterly Report to Congress for the period ending 12/31/2009. The executive summary tells us all we need to know about their assessment of the TARP initiatives over the past year. This whole segment is a MUST READ (it’s not a pretty picture):

The substantial costs of TARP — in money, moral hazard effects on the market, and Government credibility — will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, or five, or ten years’ time. It is hard to see how any of the fundamental problems in the system have been addressed to date.

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Posted Feb 2nd 2010 at 1:56 pm in federal spending | 52 Comments

Dan Mitchell

University of Michigan Study Confirms Link Between Financial Bailout and Corruption

by Dan Mitchell

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Since Senators engaged in open extortion and bribery to enact Reid’s government-run healthcare plan, it is hardly newsworthy that Washington is riddled with corruption. But the magnitude of sleaze is probably far greater than most people realize. There is a new study from a couple of academics at the University of Michigan, who found significant relationships between lobbying and bailout money, as well as a greater chance of getting bailouts depending on a bank’s ties with either the Federal Reserve or key members of Congress. Hopefully, people across America will draw the obvious conclusion and realize that big government is inherently corrupting, as discussed in this video. Reuters has the details on this latest example of big government and malfeasance:

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Posted Dec 22nd 2009 at 1:11 pm in Economics, Healthcare, Obama, Politics | 92 Comments

The New Ledger

Where Does Too Big to Fail Come From?

by The New Ledger

Muscling through a rough cold, Francis shares his thoughts on an interesting piece on the Too Big to Fail concept in the latest issue of National Affairs on today’s edition of Coffee and Markets, a daily podcast from The New Ledger on politics, policy and the marketplace with Francis Cianfrocca, brought to you by BigGovernment.com.

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National Affairs: Too Big Not To Fail

The catastrophe that struck America’s financial system in 2008 was not inevitable. Rather than a failure of markets, it was a failure by government to understand its proper role in markets — and the product of an unwise (and unnecessary) abandonment of a sensible system of rules and boundaries that had served American finance well for six decades.

Beginning in the 1980s, and continuing over the quarter-century that followed, Washington afforded the world of big finance a terrible ­luxury: freedom from the fear of failure. Managers and lenders at financial companies came to understand that the larger and more complex their firms got, the more immunity from market discipline they would enjoy — since they could depend on government guarantees when necessary to protect the broader economy from their mistakes. The government thus countenanced and subsidized an untenable financial system. And it inevitably got more of what it paid for: reckless risk building up to disaster.

The errors laid bare by the financial crisis clearly call for regulatory reform. But in designing that reform, we should avoid the temptation to seek heavy-handed new approaches — and should instead look to the long-term success of the system of rules whose decay brought about the crisis.

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Posted Dec 17th 2009 at 8:17 am in Coffee and Markets, Economics | 6 Comments

Charles Gasparino

Robert Rubin: The Nexus Of Big Government and Wall Street

by Charles Gasparino

For anyone who thinks that big Wall Street and Big Government aren’t joined at the hip, promoting policies and laws that keep each other fat and happy often at the expense of the American taxpayer, consider the career of Robert Rubin.

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Rubin, of course, is largely gone from the public scene after spending 10 disastrous years as a board member and senior executive at Citigroup, the banking giant that epitomizes all that is wrong with American finance, and before that, a largely successful run as Treasury Secretary in the Clinton Administration, which he joined after running another controversial bank, Goldman Sachs. But his legacy looms large, mainly because I believe he was one of the reasons why the financial crisis occurred in the first place.

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Posted Nov 11th 2009 at 6:37 am in Economics, Featured Story, History, News, Politics | 31 Comments

Veronique de Rugy

What Do You Mean the Federal First-Time Home-Buyer Tax Credit Attracts Fraud?

by Veronique de Rugy

As mentioned earlier (here ), the financial crisis was fueled by the government’s obsession with home ownership. Yet, last year the Bush administration decided that it was wise to continue to encourage people to buy houses that they couldn’t afford. That’s why it came up with a refundable tax credit, worth up to $8,000 for the purchase of a first home.  Refundable tax credit means that the claimants will get cash back even if they paid no taxes.  The low level of documentation required to get your credit makes it also a low hanging fruit for potential scammers. Is anyone surprised?

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“The Treasury’s inspector general for tax administration, J. Russell George, recently told Congress that at least 19,000 filers hadn’t purchased a home when they claimed the credit. For another 74,000 filers, claiming a total of $500 million in credits, evidence suggests that they weren’t first-time buyers.

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Posted Oct 30th 2009 at 9:01 am in Congress, Economics | 12 Comments

Anthony Randazzo

Gasparino Skewers Government Policy As a Major Contributor to the Financial Crisis

by Anthony Randazzo

One of the last people you’d expect to be a catalyst for the near collapse of history’s most advanced financial system is the secretary of Housing and Urban Development. Though not the masterminds of the nation’s economic woes, Andrew Cuomo and Mel Martinez were willing musclemen for the Congressional and White House driven mandates that housing be made more affordable to all through government subsidy.

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Those mandates, policy stemming back to the 1960s, were driven by compassion, but have turned out to be the chief cause for the current rampant rates of default, foreclosure, and economic pain striking particularly hard at low-income families.

Such is the story Charlie Gasparino tells in his new book, The Sellout: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System. Gasparino notes that Cuomo as much as boasted in the late 1990s about forcing Fannie Mae and Freddie Mac to expand their subprime mortgage portfolios. Not slowing down, the George W. Bush appointed Martinez carried the ball forward with great speed, presiding over a period of time where Fannie and Freddie grew to hold a combined $1 trillion in subprime mortgages.

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Posted Oct 29th 2009 at 12:57 pm in Congress, Economics, Politics | 25 Comments

Anthony Randazzo

President Obama Believes in a Free Market, So Why Not Regulatory Policies That Would Promote It?

by Anthony Randazzo

President Obama appeared at Federal Hall in New York yesterday to reiterate his support for a massive overhaul of financial services regulation. At the center of the speech the president laid out his economic philosophy:

I have always been a strong believer in the power of the free market. I believe that jobs are best created not by government, but by businesses and entrepreneurs willing to take a risk on a good idea. I believe that the role of the government is not to disparage wealth, but to expand its reach; not to stifle markets, but to provide the ground rules and level playing field that helps to make those markets more vibrant — and that will allow us to better tap the creative and innovative potential of our people. For we know that it is the dynamism of our people that has been the source of America’s progress and prosperity.

If this were the philosophy actually driving regulatory reform, it would be the biggest ray of sunshine in an otherwise cloudy field of government-expanding reforms (health care, energy, and college loans to name a few). Unfortunately, the plan the White House sent over to Congress in June does not line up with this statement from the president.

Instead, the bills now floating around the Rayburn House Office Building and Rep. Barney Frank’s Financial Services Committee propose reforms that will stifle innovation and restrict opportunities to create wealth. The White House plan, as proposed, would not create an even playing field for competition, but would give big firms a competitive advantage by labeling them too big to fail. Ultimately, the regulation reform proposals represent a massive power grab from Washington.

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The president criticized the doctrine of too big to fail (TBTF) yesterday, but his plan will create a tiered structure naming the biggest firms systemic risks to the system because of their size and interconnectedness. The proposed resolution authority would essentially act as a built-in bailout mechanism for those firms. So instead of ending TBTF, the president’s plan actually codifies the policy, essentially turning Wall Street’s biggest institutions into government-sponsored entities in the mold of Fannie Mae and Freddie Mac before the crisis.

Firms knowing they are TBTF with government protection will have a greater incentive to take risks. Lenders, knowing the TBTF firms have the backing of the government, will offer the cheapest of credit to JP Morgan Mae and Citi Mac, creating an uneven market. That’s not the level playing field the president wants.

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Posted Sep 16th 2009 at 5:01 am in Economics, Obama | 156 Comments