The Unbearable Lightness Of TARP Reporting

The Daily Bail
March 15, 2011

Originally published in September 2010.

Not so fast Czar Zimbabwe and MSM sycophants.  FED whitewash exposed.
A new academic paper by economists from MIT and the NY Fed proves that credit markets were NOT “frozen” during the crisis.

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Monday was the second anniversary of the failure of Lehman Brothers.  And it was two years ago tomorrow that Hank Paulson and Ben Bernanke met with the Congressional leadership in a conference room on Capital Hill, telling them that the entire economic system would cease to function if they didn’t pass a bailout bill.  One of the things Paulson and Bernanke told the members

— something that was repeated over and over, and continues to be repeated

— was that the credit markets were “frozen.”  Banks, they said, would not lend to each other.  If this were true, it would be very bad indeed.

But it wasn’t true.  The credit markets were not “frozen.”  Banks were lending to each other.  The credit markets were functioning.   And now we have a study, by two economists from the NY Fed and one from MIT, that proves it.  In “What Happened to US Interbank Lending In the Financial Crisis?,” Gara Afonso, Anna Kovner and Antoinette Schoar show that despite claims of a credit “freeze,” it never happened.  Some theoretical studies, they note, suggest that fear in the interbank markets could be contagious and would lead to a total freeze, but the authors of this study simply looked at the available data.  (Crazy, I know.)

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Bill Isaac Vs. Hank Paulson's Bailout Machine -- How The Former FDIC Chairman ALMOST Stopped TARP

Bill Isaac Vs. Hank Paulson's Bailout Machine -- How The Former FDIC Chairman ALMOST Stopped TARP

The little-known story behind the House's initial rejection of TARP from Bill Isaac's new book Senseless Panic.

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Bill Isaac was Chairman of the FDIC from 1981-1985 during one of the most tumultuous decades in American banking.  He oversaw the banking system during the Latin American debt crisis and the severe recessions of the early 1980's, and tried -- against enormous political pressure -- to head off the looming S&L crisis before it got worse.  As many know, the S&L clean-up cost taxpayers hundreds of billions of dollars, but had Congress taken Isaac's prescient advice earlier in the decade, the ultimate costs would have only been an estimated $2B.

Fast forward to 2008.  On September 18, Paulson and Bernanke had convinced the Congressional leadership that a bank bailout plan had to be passed immediately or else the entire global economy would collapse.  In his new book, Senseless Panic: How Washington Failed America, Isaac writes:

• "Having served as chairman of the Federal Deposit Insurance Corporation (FDIC) during the banking and S&L crises of the 1980's, I was disturbed, even angry, about the events that led up to the bailout plan itself.  I was so upset that I wrote an opinion piece opposing the bailout plan that ran in the Washington Post of Saturday, September 27."

In his op-ed, Isaac pointed out that several of the ostensible reasons for why we had to pass the TARP bill just didn't make sense.  For instance, the claim that TARP had to be passed because there was a run on money market funds was completely specious as the U.S. Treasury had announced their blanket guarantee on September 19.  Similarly, if the proponents of TARP wanted to claim that ordinary depositors were scared of bank failures, then why not be more clear about "the fact that the FDIC fund is backed by the full faith and credit of the government"?  (This is more or less what the FDIC did anyway, when it raised the deposit insurance limit to $250,000.)  Besides, Isaac wrote, "[t]his is how the FDIC handled Washington Mutual. It would be easy to announce this as a temporary program if needed to calm depositors."  As with so many of the government's excuses for TARP, actions that had already been taken disproved the claims for why TARP was necessary.

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