Bank bailout was a mistake - TARP should be suspended

Posted by Shyam Moondra

Secretary Paulson used scare tactics to make the Congress approve the TARP and handout $350 billions to financial institutions. It's amazing that the sole objective of this program was to unfreeze the credit market and induce the banks to start lending more money to corporations, small businesses, and individuals, and yet the lawmakers didn't bother to write the legislation in such a way that it would force the banks to use the funds for that purpose and that purpose only.

The financial institutions pocketed the TARP money and used it for the following purposes:

1. Throwing lavish corporate parties and conferences.
2. Handing out bonuses to the employees, even though they are losing billions.
3. Maintaining dividends when their heavy losses would dictate that they suspend dividends.
4. Maintaining corporate jets.
5. Lobbying in the Congress.
6. Acquiring other banks.
7. Buying back their own securities (e.g., Morgan Stanley and Goldman Sachs have been aggressively buying back their own securities on the open market), thereby making CEOs' stock options more valuable.
8. Speculative trading (especially by investment banks such as Goldman Sachs).

One thing that the TARP recipients are doing very little is to use that money for lending which was the sole objective of the whole program. The TARP is a major failure and it should be suspended. The Congress should not release the rest of the $350 bi TARP funds to Paulson; that money should be used to provide stimulus via infrastructure projects and to stop home foreclosures.
There have been reports that Paulson/Keshkari misused TARP funds to help their former employer, Goldman Sachs. It's reported that Paulson gave a lot of money to AIG because AIG owed money to Goldman Sachs, so it was not about saving AIG, it was more about funneling funds to Goldman Sachs. The Justice Department should investigate Paulson/Keshkari about how they distributed the TARP money. It's shocking that given the size of the funds involved, there are inadequate accounting controls within the Treasury Department as well as lax oversight by the Congress.
In any event, investment banks should never have been included in this program because they are not in the business of lending. They are using the TARP money to do more speculative/manipulative trading for their own accounts and buying back their own securities that don't do much good for the economy.