Fast forward to April 2010. GM triumphantly claimed that it had repaid its TARP loans ahead of schedule and with interest (well not exactly). It doesn’t take a math wiz to question how GW could go from bankruptcy to paying back the $49.5 billion they had received in TARP funds in just a year. Senator Chuck Grassley of Iowa was quick to pick up on that; GM shuffled its TARP funds, converting a portion of its debt into stock and viola, money (TARP money) was used to “pay back” the Treasury. (“Nice work down in accounting fellas”). In effect, taxpayers were just paid back with different TARP funds not robust earnings. Taxpayers get devalued stock and GM gets to claim it paid back the loans “in full”. But it could have been worse and tens of thousands of jobs were saved
Barofsky serves as a model for the kind of person needed when the government gets in the business of giving away taxpayer money and lots of it: someone who has the character and credibility to be taken seriously and who will work doggedly to protect our money.
Just when we thought maybe, just maybe, greed would take a back seat to long term value and prudent compensation that incentivizes sound risk taking, the WSJ reports that pay at public companies on Wall Street will reach a new record: $135 billion. Wow.
The usual suspects were rounded up and they had a few hearings. Then many months later they issued another report for the bookshelves, destined only to gather dust next to hundreds of other reports of one catastrophe or another.
For years the public mostly turned a blind eye to Wall Street’s corporate practices, including the lucrative (and ludicrous) bonuses and salaries paid to top executives, largely for speculative trading. Wall Street produces no products. But so long as their companies made enough to pay out such exorbitant amounts, we rationalized, what was the problem? The financial collapse should have served as ice water poured on our snoozing faces. Incentivized by a pay structure that valued risk, we were all led to the brink of disaster. It was only the infusion of $450 billion in taxpayer money that saved us from The Great Depression, Part II. So why on earth are Wall Street’s top companies set to pay a record $144 billion in compensation this year?
Our government is specifically designed to prevent decisive action. Montesquieu wrote of the need to separate and balance the functions and powers of the branches of government. In Federalist 10 Madison wrote that government should serve to temper misdirected passions of the people. Frustrating as this is in hard times, our system is built for inaction, compromise and half measures.
Uncharacteristically, FINRA plans to propose a rule that makes it easier and fairer for securities disputes to be decided. Arbitration, currently presided over by a group least one member of the securities industry, would shift to a committee of only members of the public.
The SEC continues to crack down on phone investment scams that target innocent investors. For a complete list of press releases regarding their cases, see the Commission’s press releases.
Some large banks have fully repaid their TARP loans, but we must not forget the billions loaned out to smaller banks, many of which are struggling to repay. Less than 20% of the banks that accepted loans have repaid fully, and over $60 billion was still due to the Treasury as of August, Reuters reports.
“Instead of writing Secretary Geithner, what Congressman Sestak really needs to do is use his good offices to propose legislation creating a private right of action to curb TARP abuses.” Recently, Representative Joe Sestak (D-Pa) opined on The Hill’s Congress Blog that we need more oversight and transparency for TARP funds. You think??? Of course… Continue Reading
We recommend Mr. Barofsky seek additional funding for more staff and investigators. The Administration should also request that Congress amend the TARP to allow a “private right of action”. Private attorneys ferreting out fraud can make a real difference. We need more than 2 filed cases to serve as a deterrent, protect the essential mission of the TARP, and limit the cost to taxpayers.