Did Ben Bernanke Pull the TARP Over Eyes?

Did Ben Bernanke Pull the TARP Over Eyes?
Dean Baker, http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=02&year=2009&base_name=did_ben_bernanke_pull_the_tarp">The American Prospect

The Facts:

The week that Lehman Brothers went under and AIG collapsed, Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernacke wne to Congress and told the leadership that the financial system was collapsing and that Congress had to take immediate action to avert economic collapse. That weekend, Secretary Paulson put in a request for $700 billion for a bailout program with no strings attached.

Over the next two weeks Congress debated the bill, adding some provisions that were ostensibly designed to constrain Treasury for example by limiting executive compensation at the banks getting public funds and also limiting the extent to which banks could profit off these funds. Many members of Congress, and millions of people across the country, objected that the restrictions were inadequate. Congress ended up approving the bill, based on the claim that the need for the money was urgent and there was insufficient time to produce a better bill.

One of the important factors behind the urgency was the claim that even healthy non-financial companies (e.g. Verizon or Boeing) could not borrow in commercial paper markets to get the credit they needed to meet their payrolls and pay their other bills. Ben Bernanke contributed to this view when he answered a question at a press conference:

"I see the financial markets as already quite fragile. The credit markets aren't working. Corporations aren't able to finance themselves through commercial paper."

The weekend after Congress passed the TARP, Bernanke announced that the Fed would begin to directly buy the commercial paper of non-financial corporations.


The Conspiracy Theory:

Bernanke was working with Paulson and the Bush administration to promote a climate of panic. This climate was necessary in order to push Congress to hastily pass the TARP without serious restrictions on executive compensation, dividends, or measures that would ensure a fair return for the public's investment.

Bernanke did not start buying commercial paper until after the TARP was approved by Congress because he did not want to take the pressure off, thereby leading Congress to believe that it had time to develop a better rescue package.


New Evidence for the Conspiracy Theory.

At a speech at the Press Club this week, Bernanke was asked why he waited until after the TARP was approved before he began buying up commercial paper of non-financial corporations. He responded:


"Well, look at the calendar. The financial crisis intensified in mid-September and got worse to the point where there was a huge global financial crisis in early October. During that interim, Congress passed the Emergency Economic Stabilization Act, which includes the TARP. And that TARP, the money there was very useful in helping to stabilize the banking system in early October. There was this critical moment. I think it was about the 14th of October, following a G7 meeting here in Washington, where not The United States but countries around the world took very strong actions in terms of capital, in terms of guarantees and other actions to try to stabilize the world banking
system.

It was during this period that the commercial paper market and the money markets, money market mutual funds showed the worst stress. It was in those 18 weeks that that stress appeared and those markets began to dysfunction. And we can't set these programs up immediately. It takes a bit of time to get them structured legally and to arrange for the market terms and to work with market participants and so on. But we got it going actually quite quickly. It's been now more than three months since the commercial paper facility has been functioning. And it seems to have had notable impact on both commercial paper rates and on the terms of finance available."

This statement, that the commercial paper market first seized up in October would seem to contradict Mr. Bernanke's statement of September 24th: "Corporations aren't able to finance themselves through commercial paper."

The question here: why aren't any reporters asking questions about this?

Hardly a conspiracy theory. More like the most sensible default assumption, one which those who were demanding $700 billion in public money should have been compelled to prove otherwise before receiving a dime!

Wall Street the like used the possible collapse of our economy, thus the core of our country as a blackmail to our government to fork over what was orig. estimated at $700 billion dollars. Later as the dust startled to settle with the bill is was reported another $150 billion dollars was added for additional pork. Not only the amount outrageous, the way the was quickly being pushed through the process was unusual. A sense of "urgency" is what kept being reported as the excuse for this scam.

And thankfully, unlike much of the media at first, a number of DUers were smart enough and caring enough to raise concern over how little oversight seemed to be included with this massive bill at the taxpayers expense. And it was because of other DU members that I not only started watching for the bill in the media, which was barely being discussed at first, but I started questioning this bill.


It was also hard to get a straight answer from the media and even legislators on the exact details of the bailout initially. The sense I got from the legislators at that time was that it is urgent that they do something with this bill and that we should all just trust what they were doing.




Know what you're paying for. The Stimulus Plan ("American Recovery and Reinvestment Act of 2009"): Orig. House version -- http://appropriations.house.gov/pdf/RecoveryBill01-15-09.pdf , House spreadsheet -- http://spreadsheets.google.com/ccc?key=pV-c6t5fOVmNorqMpHvnCMw ; Senate version -- http://appropriations.senate.gov/News/2009_02_02_The_American_Recovery_and_Reinvestment_Act_of_2009.pdf ; and Senate compromise -- http://www.govtrack.us/congress/billtext.xpd?bill=h111-1 , Text and $$$ details of Senate compromise -- http://appropriations.senate.gov/News/2009_02_08_UPDATED_Appropriations_Provisions_of_American_Recovery_and_Reinvestment_Act.pdf?CFID=4043629&CFTOKEN=40573040 . In addition to -- http://readthestimulus.org/amdth1.pdf , along with -- http://www.readthestimulus.org/ . Final version, Feb. 13th, 1500 pgs. worth -- http://www.whitehouse.gov/the_press_office/arra_public_review/ , more details on the final version -- http://www.taxpayer.net/resources.php?category=&type=Project&proj_id=1913&action=Headlines%20By%20TCS , including spending -- http://cbs4denver.com/national/Web.government.accountability.2.937188.html