TARP, PIPP, TALF, FRB, FDIC, EESA – An Expensive Alphabet


I would suppose every American has heard about the $700-billion financial bailout Washington shoved down our throats. In fact, I believe some people still find it a tough pill to swallow. I know I do. What I also believe is most Americans don’t know about the in-bred agencies, and their fallout, created as a result of the bailout.

Since I had nothing else to do I decided to see not only what it might really cost you and me the taxpayer but what other agencies were created by the bailout legislation. First, the cost is now estimated to be $2.9 trillion, or higher. $2.9 trillion is nearly equal to the entire federal budget if the numbers on the federal websites are correct. Second, four of the six alphabet acronyms in the title of this post were created from the bailout legislation.

Almost all of us know about the Troubled Assets Relief Program (TARP) but don’t know that EESA,the Emergency Economic Stabilization Act of 2008, was the act that allocated the $700 billion to TARP. I’d also bet most of us didn’t know the Federal Reserve Bank (FRB) and the Federal Deposit Insurance Corporation (FDIC) will invest up to $1 trillion each in a partnership with the Treasury Department’s TARP.

Are you adding the numbers? Did you notice Congress only allocated $700 billion to be spent but we are up to $2.7 trillion?

Mind you, Obama’s proposed federal budget for fiscal year 2010 is $3.6 trillion. We are only one year away from 2010 and $.9 trillion away from Obama’s proposal. Do you see any possibility the two might, speculatively speaking, meld?

Inspector General (IG)

The special inspector general for the TARP program is Neil Barofsky. He is the guy who published a special report that has all these numbers, facts and speculations.

Barofsky’s office gives us a stark wake up call right between the eyes. If you read the report, you’ll see words to this effect: “Whether the money comes from the congressionally approved TARP or from the FDIC and Fed, taxpayers are still liable for up to nearly $3 trillion.” The numbers just keep getting bigger and bigger don’t they?

The relevant question becomes where in the world are these numbers coming from? The short answer is the Term Asset-Backed Securities Loan Facility (TALF) and the Public-Private Investment Program (PPIP).

What is a TALF and a PPIP? According to published information, TALF is a program under TARP created in November 2008 to make more credit available to consumers and small businesses. Sounds like one great agency until you dig a little deeper. [PPIP] is a program designed with a public-private financing component. It probaly will involve putting public or private capital side-by-side and using public financing to leverage private capital on an initial scale of up to $500 billion, with the potential to expand to $1 trillion.

Hang on because the big got bigger in February 2009. That’s when the Treasury and the Federal Reserve announced an expansion of TALF funds of up to $1 trillion. However, only $80 billion would come from the original $700 billion TARP funds. Is any of this starting to look like smoke and mirrors?

According to published reports from the FRB, the Fed said the $1 trillion is the maximum amount it will put into the consumer and small business program called TALF. They also said they would entertain only a certain set of asset classes and for only up to $200 billion.

Does anyone else not only see the smoke and mirrors but smell the smoke and see the reflections…

A Page From The Report

I think taking a page out of the report will help highlight the political shell game. Let’s take page 108. It seems to be pertinent. It states the inspector general’s idea on how PPIP works. They say: A bank, working with the FDIC, determines it wants to sell a loan with the face value of $100 to be sold for $60. The FDIC auctions that loan, and a private investor makes a $60 winning bid.

The FDIC – granting a 6-1 debt-equity structure in the program – fully guarantees a $51 loan to the private investor. Then the private investor would put up $4.50, and the Treasury Department would put up $4.50, so the private bank receives the full $60 and the private investor must pay back the $51 loan over time.

If the loan fails entirely, then the private investor loses $4.50, Treasury loses $4.50 and the FDIC loses $51 since the FDIC provides a 100 percent guarantee on the loan. Who do you think guarantees the FDIC’s part of this investment?

Transparency – Yeah Sure!

By the way, this same report wants a greater degree of transparency than is currently included in both the Term Asset-Backed Securities Loan Facility (TALF) and the Public-Private Investment Program (PPIP). The IG said the expansion of TALF “poses significant fraud risks” and calls for more screening of all transactions in the program.

The report doesn’t mince words when it says Treasury should impose tough conflict of interest rules on public-private fund managers to prevent investments that benefit the fund manager at the risk to the taxpayers. The report also says that Treasury should disclose the owners of all private equity stakes in a public-private fund. Gee, disclosing ownership, what a novel concept.

When the IG of the program says “aspects of PPIP make it inherently vulnerable to fraud, waste, and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants, and vulnerabilities to money laundering”, I’d like to think congress would pay attention and address those issues. I can think all I want since congress has demonstrated a weak willed resolution when it comes to the bailout package.

In other words, I wouldn’t bet my life on seeing transparency in these programs any time soon. That doesn’t bode well for you and I. We are guaranteeing money in programs just like the ones that got us into this mess only now we have put fancier acronyms on them. Why would we want to do that? Simple. Because the politicians have found a way to keep their rich friends slurping from the taxpayer guaranteed gravy train.

Aren’t you glad I had nothing to do this past week?

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