Last week, Treasury Secretary, Henry Paulson, briefed Congress on the ‘apocalyptic’ magnitude of the present credit crunch. Congress responded by putting together a $700 billion bailout package for the beleaguered financial institutions. On Sunday, the Financial Services Roundtable – a lobbying group representing the nation’s banks – called on Congress to make the plan “broad enough to include different types of assets.” Paulson has asked Congress to expand the scope of the bail out beyond troubled mortgage assets. The Troubled Asset Relief Program (“TARP”) has become a hey day for lobbyists. But the lack of transparency regarding whom the taxpayer is bailing out and for what assets is very troubling.
While it is imperative to get the frozen credit markets up and running, we also need to be certain that the types of conflicts of interests that riddle Wall Street aren’t visited upon TARP. The financial service lobbyists are diligently working their contacts on Capital Hill to ensure that the TARP valuations are rigged in their favor. The taxpayer should not be stuck with the loss if the mortgage security is sold for less than the value assigned to it by the beleaguered bank.
Who are the taxpayers bailing out? AIG wrote $441 billion in credit insurance on mortgage related securities whose values have declined. Should AIG have failed, all these institutions that bought the insurance would have been subject to enormous losses. The ripple effect would have been a tsunami. The $85 billion federal lifeline to AIG was really extended to the company’s counterparties or trading partners – wealthy financial institutions, many of which are European banks. As long as we are not being told whom we have bailed out, we will be justified in suspecting that a favored few are making gains on our dimes.
http://www.nytimes.com/2008/09/22/opinion/22krugman.html?_r=1&oref=slogin
http://www.nytimes.com/2008/09/21/business/21gret.html?_r=1&oref=slogin
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