The SIGTARP published its latest quarterly report to Congress yesterday. I've read through it since I have nothing better to do on a weekend. There's both good news and bad news in there.
The good news is that the taxpayer won't lose both an arm and a leg on TARP since some of the investments have been repaid. It looks like we'll just lose a leg and most of our fingers but keep much of the arm. Yay!
The bad news is that TARP's goal of increasing lending to small businesses still hasn't been met. Only a small fraction of home mortgages have been modified. Executive compensation at bailed-out banks is out of control. The economy is still in danger because too-big-to-fail banks are not disincentivized from taking huge financial risks. In other words, TARP has been largely a very expensive transfer of wealth from the American taxpayer to rich people on Wall Street with very little public benefit in return.
Items of note . . .
Page 11: The Treasury Department refuses to erect information walls within PPIP (further discussed in the report's Section 5), leaving open the unmitigated potential for fraud and insider self-dealing.
Page 16: FRBNY officials didn't review AIG's compensation plans as thoroughly as they should have, and didn't share what they learned with Treasury. IMHO, Timothy Geithner apparently doesn't drive his staff hard enough to find out what's going on.
Page 21: Government officials continue to resist transparency even though the report shows that transparency would not hamper TARP's execution.
Page 61: Treasury finally agreed, over a year after the initiation of TARP, to publish reports from TARP recipients on the use of public funds. Better late than never. Couldn't they have called the SEC to get some insights on how EDGAR works?
Page 89: Support for small business lending is moribund with no get-well date on the calendar.
Page 100: Table 2.28 shows the incredibly small number of permanent mortgage modifications accomplished by the top 5 servicers. Change you can believe in!
Overall, this is a competently written report. It shows that TARP is a costly mess that has largely not solved the problems it was designed to address. That's why the U.S. economy is still on thin ice, awaiting the next break. What still surprises me is that investors are willing to buy stocks in the face of such high-risk headwinds. I'm going to sit on my cash pile and hoard my gold for a while.
