The Quarterly Report issued in October 2011 by the Special Inspector General of the Troubled Asset Relief Program (TARP) reveals the utter lack of oversight and mismanagement of funds in excess of $700 Billion Dollars.  The 316 page report begins:

Through the Troubled Asset Relief Program (“TARP”), the American taxpayers became investors in hundreds of financial institutions, the auto industry, and cer­tain markets for asset-backed securities, and the Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) serves on the front line to protect those investments. SIGTARP is the only agency solely charged with a mission of transparency, oversight, and enforcement related to the taxpay­ers’ unprecedented investment of hundreds of billions of dollars in the private sector…. This month…the first criminal charges were filed against senior executives of a TARP bank when two senior executives of United Commercial Bank (“UCB”) were charged in connection with an alleged scheme to defraud investors. The Department of Treasury (“Treasury”), and by extension the American taxpayer, became investors in UCB’s holding company when it received more than $298 million in TARP funds. UCB was the first TARP bank to fail and the taxpayers’ entire TARP investment is lost.

TARP included $45.6 Billion to fund the Home Affordable Modification Program (HAMP) of which only $2.5 Billion (5.4%) has been spent.  SIGTARP addressed its concerns about the poor performance of the HAMP program to the Treasury Department, but states that “Treasury has determined not to take any further action to implement SIGTARP’s recommendations. Treasury is giving up a chance at mean­ingful change and sadly, it is struggling homeowners who have the most to lose.”

The housing and mortgage crisis was a direct result of the increasing deregulation of the mortgage industry enabled by the Community Reinvestment Act of 1977 and the federal government’s ideological philosophy that everyone should and must be afforded their dream of home ownership, regardless of their credit worthiness or their ability to repay the mortgage. The federal government, through coercive threats of lawsuits for discriminatory lending practices, forced these lenders to make these risky loans.

The feeding frenzy of easy money, teaser interest rates, one hundred percent financing (generally involving two mortgages, a first mortgage for eighty percent of the purchase price and a second for the remaining equity, thereby eliminating the necessity for private mortgage insurance), no income or asset verification of the homebuyer and, in many cases where homebuilders were involved, up to one full year of mortgage payments paid in advance by the builder at closing in addition to the payment of all of the closing costs, increased the demand for new homes and drove up home prices.  An additional caveat of the 80/20 scheme eliminated the requirement that the homebuyer escrow money with the lender for payment of property taxes and homeowners insurance.  This resulted in massive losses of revenue at the city, county and state level.

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Can you teach an old dog new tricks? In politics, the answer is usually no. Most elected officials cling to their ideological biases, despite the real-world facts that disprove their theories time and again. Most have no common sense, and most never acknowledge that they were wrong.

But one huge exception to this rule is Democrat Barney Frank, chairman of the House Financial Services Committee.

For years, Frank was a staunch supporter of Fannie Mae and Freddie Mac, the giant government housing agencies that played such an enormous role in the financial meltdown that thrust the economy into the Great Recession. But in a recent CNBC interview, Frank told me that he was ready to say goodbye to Fannie and Freddie.

“I hope by next year we’ll have abolished Fannie and Freddie,” he said. Remarkable. And he went on to say that “it was a great mistake to push lower-income people into housing they couldn’t afford and couldn’t really handle once they had it.” He then added, “I had been too sanguine about Fannie and Freddie.”

When I asked Frank about a long-term phase-out plan that would shrink Fannie and Freddie portfolios and mortgage-purchase limits, and merge the agencies into the Federal Housing Administration (FHA) for a separate low-income program that would get government out of middle-income housing subsidies, he replied: “Larry, that, I think, is exactly what we should be doing.”

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With the disappointingly soft jobs report for July, and a faltering recovery overall, is Team Obama getting ready for some sort of new, liberal-left, Keynesian, big-bang stimulus package? Will they be desperate to “do something”?

Already there are rumors of an August surprise (to use the phrase of business columnist Jimmy Pethokoukis) where Fannie Mae and Freddie Mac forgive underwater mortgages held by millions of Americans. And with state and local government jobs having fallen 169,000 year-to-date, perhaps the Democratic Congress and the White House will seek an even bigger spending plan for teachers and Medicaid workers — on top of the $26 billion plan that just passed the Senate.

Or maybe the Democrats will come up with a new infrastructure-spending bill, perhaps for green technologies and whatnot. Or maybe they’ll extend unemployment benefits even more. My liberal friend Robert Reich is even talking up the New Deal’s Works Progress Administration (WPA), where the government employed millions during the 1930s.

With the announcement this week that Council of Economic Advisers chair Christy Romer will leave the White House to go back to teach at Berkeley, it looks like the center of economic gravity will shift leftward inside the West Wing.

Meanwhile, over at the Fed, it seems ever more likely that the FOMC meeting next week will produce a much more dovish policy statement, one that will lengthen the “extended period” near-zero-interest-rate language and hint at new cash purchases of Treasury and mortgage bonds to increase the central bank’s balance sheet and expand the basic money supply. Already, in recent weeks, the dollar has been plunging.

Of course, Republicans will push harder to keep the Bush tax cuts for the wealthy — as they should. But Democrats are now trapped by Treasury man Tim Geithner’s statements that extending low tax rates for successful earners, investors, and small businesses would actually imperil economic recovery. This is his war against investment and capital formation.

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From James Pethokoukis at Reuters:

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie. A few key points:

1) Republican leaders believe this is going to happen since GOPers and Democratic moderates in the Senate are unwilling to spend more taxpayer money on more stimulus. But such a housing plan would allow the White House to sidestep congressional objections and show voters it is doing something tangible about an economy that seems to be weakening.

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In my piece over the weekend, I cited the Obama administration’s “Making Home Affordable” mortgage bailout plan as a paradigmatic example of why the public is right to distrust the federal government’s capacity to manage health care.

I quoted a grim New York Times article from January entitled, “US Loan Effort is Seen As Adding to Housing Woes.”  The headline speaks for itself.  The piece says that top experts have concluded that Big Government’s intervention to reverse the housing market spiral has actually accelerated said spiral:

Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

This week brings more bad news for “Making Home Affordable’s” central planners in Washington.  In a new report, TARP Special Inspector General Neil Barofsky rips the program for:

…Having ill-defined metrics and for helping far fewer homeowners than originally proposed. “The program risks helping few, and for the rest, merely spreading out the foreclosure crisis.”

Poor planning, poor implementation, and no credible plan to demonstrate effectiveness?  Go figure!  It also turns out that–shockingly–the administration grossly over-promised the number of homeowners its scheme would assist.

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Several hours into last month’s marathon health care summit, President Obama became exasperated.  Republican lawmakers Rep. Paul Ryan and Sen. Jon Kyl had plainly laid out their party’s objections to his massive legislation by emphasizing a major philosophical point of departure between the two parties.   Democrats place a great deal of faith in the effectiveness and wisdom of the federal government in handling complex social and fiscal issues, they said, whereas Republicans view centralized planning and onerous regulation with a jaundiced and skeptical eye.  This virtuosic issue-framing wouldn’t do, Obama concluded:  “Any time the question is phrased as, ‘Does Washington know better?’ I think we’re, kind of, tipping the scales a little bit there—since we all know that everybody is angry at Washington right now,” he griped.

Indeed.  Ryan and Kyl were stating the obvious: The American people don’t trust big government.  Reinforcing those insecurities and applying them to the health care debate was precisely the point of raising the issue, and the president knew it.  In fairness, negative perceptions of government bureaucracy certainly pre-date the Obama administration and the current “reform” battle.  Cracks about the DMV’s inefficiencies and the Post Office’s red ink have long been political punch lines.  (Oddly, Obama once unfavorably cited the Post Office while advocating increased federal involvement in health care).  Those warmed-over bromides notwithstanding, much of today’s scorn for big government can be laid at the feet of policies proposed and instituted by President Obama and his party.  Americans’ skepticism toward government intervention has grown more acute after a series of recent high-profile federal flops.

“Making Home Affordable” was the federal program introduced in February 2009 that touched-off Rick Santelli’s infamous Tea Party-catalyzing rant.  It was a $75 Billion mortgage program devised to protect homeowners from foreclosure.  Nobody relished the thought of fellow citizens being forced from their homes, but critics of the plan argued it would reinforce foolish bank lending practices, reward individuals for living far beyond their means, and punish responsible taxpayers with current mortgage payments.  Epitomizing the program’s backwardness was the case of bus driver Minta Garcia.  According to CNN, Garcia had managed to “buy” an $800,000 home that her family couldn’t remotely afford.  Inevitably, she soon fell hopelessly behind on her payments.  Thanks to Obama’s tax-funded munificence and empathy, she and others like her could qualify for personalized government bailouts.

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It appears that the Bailout Bob Corker continues to ignore the pleas of his conservative allies and constituents and is close to reaching a deal on establishing a new consumer regulatory bureaucracy that in the words of Sen. Dodd, will be like one we have not seen before. Corker has told CNBC that the last stick point is not the principle of new regulation — he has capitulated on that point — but “administrative issues.”

The legislation includes Corker’s pet project, a “strong resolution mechanism for unwinding troubled companies.” News to Corker: For over 200 years, America had such a mechanism — it was called bankruptcy. But “unwinding” troubled companies is a code word for BAILOUT. The Federal Government, via the Federal Reserve, would be empowered to break-up, subsidized and bailout companies. As House conservatives warned during the House debate, enactment of the bill would establish bailouts as the official policy of the United States for decades to come. That’s why the House bill authorizes $4 trillion for the Federal Reserve.

Adding insult to injury, Reuters also reports that the Corker “reform” bill does not address the main culprit in the financial crisis — Fannie Mae and Freddie Mac. It does not address the issues associated with Community Lending that encouraged banks to lend to people who could never pay back their loans. It does not address ACORNS. All it does it layer more Washington bureaucracy on top of existing Washington Bureaucracy. Nice work, Bob.

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Today, in 2009, CNBC commentator Rick Santelli gave voice to the frustrations and anger of millions of Americans. Movements need countless variables. But, most importantly, they need a spark.

To Mr. Santelli we say, “Happy Anniversary!”