Banks refuse to say how bailout money is spent

[ParkTwain]

Originally Posted by Bostonian08

They're not stupid, they did that on purpose. They don't want us to know where the money went. It's a simple money laundering operation. It's going to the Bank of China to pay for the war. They are doing it this way to avoid a direct tax increase.

Get real.

Rhetorical question: Why would China want a private bank's IOU when they can have a US Treasury IOU?

[saganista]

Originally Posted by oberon_1

This story has (as usual) 2 sides:
The major crises started after the banks gave bad loans to people who couldn't pay back.

Only if by "the banks", you mean to include all credit operators. The bulk of the loans that have encountered repayment problems were written with high-cost terms by independent brokers and nearly unregulated bank affiliates as feeders for those now mostly defunct or reorganized investment banks (Lehman Brothers, Goldman Sachs, Morgan Stanley, etc.) who were basically looking to horn in on the profitability of Fannie Mae in secondary markets, either with traditional mortgage-backed securities, or with sliced-and-diced derivatives even further removed from the original flow of mortgage funds. The profit potential in such secondary and tertiary operations, particularly with Fannie Mae spending some time in the penalty box for alleged accounting irregularities, created demand for original paper that invited brokers and affiliates to back off on underwriting standards as a means for propping up supply. The risk of course would be quickly passed from the brokers to the investment banks and then into secondary and tertiary markets. The brokers and investment banks make all the profit, and all the risk gets passed on to others. That's the game that was played right under the nose of supposed regulators such as the Fed and the SEC, none of whom actually did anything about it. Actually regulated banks and savings & loans were essentially negligible contributors to the crisis. These of course did experience defaults, just as they always have. But it took the cowboy capitalists to drive the situation beyond the industry's capacity to absorb defaults, and it is they who bear the brunt of the blame.

Originally Posted by oberon_1

Now, after being bailed, the banks are cautious when lending money. What the congress hoped for (when approving the bailout) was that these billions will be used to lubricate the economy. The expectation was that if a bank got $100B from the government, it will give credit to businesses in the same range. Now the banks are being cautious, holding the money tight and saying they don't want to get in the same situation once again...

Once the original high-cost mortgage loans began to fail in just the numbers that had been warned of as interest rates began to rise, the funds that would have been used to make good on secondary MSB's and tertiary derivatives were no longer available. Because of a lack of transparency, there was no way to tell what securities held by whom might fail next and with no willing buyers, markets for such securities froze up. With no market, holders of such assets could not value them and were forced to take huge write-downs on their balance sheets, leading only to further mistrust and adding a crisis in confidence to those of transparency and actual default. All of this is the equivalent of simply erasing wealth, and hence liquidity, and an illiquid market cannot operate at all. The so-called bailouts were an attempt to address the liquidity problem, pouring cash into the system to replace at least part of that which was erased. In general, that has worked, but the crises in transparency and confidence remain, and sizable sectors that need to be operating in order to complete the circle that finances virtually all economic activity are still crippled. Markets are made from willing buyers and sellers, and despite recent liquidity gains, we are not yet back to the point where the numbers of those have been restored to pre-problem levels. The remaining bailouts, stimulus packages, and proposals for regulatory reform hope to have a significant effect on that problem. If and as they do, things will improve, but the situation has been let go so long that its tentacles now have considerable reach. There is no recipe for a quick recovery...only for a slow and determined one.

[saganista]

Originally Posted by Bostonian08

That's cuz most of it is just being handed over to the bank of china. They are paying off the war loans. It's actually a smart move that will save a lot of interests. Americans are told it's a recession because of housing stuff, but that's horse dung. They're just paying off the war.

No, we are not paying off war debt. Most of the notes that could reasonably be associated with time periods that began in 2003 have not matured yet, and when they do, they will simply be rolled over.

[saganista]

Originally Posted by ParkTwain

Stupidly enough, Congress did not mandate that the banks be accountable to report on how they spend the money! COMPLAIN TO YOUR CONGRESSMAN! THEY MIGHT HAVE MADE A BAD SITUATION WORSE! YOUR CONGRESSMAN MUST LISTEN TO YOU, UNLIKE YOUR BANKER!

Actually, they did, and it's all written down in pretty plain words in the TARP legislation. The lack of oversight situation results from failure by Paulson and Kashkarian to put any meaningful effort or energy into building the oversight regime that the legislation calls for. To be sure, they have had a lot on their plates, but in a universe that includes the word "delegate", that isn't exactly a complete answer.

At the same time, one should recognize that a dollar-for-dollar tracing of what has been done with the bailout funds is not going to be possible. Bailout funds are simply commingled with other already existing funds. If you add a cup of water to a bowl of water, you can no longer separately identify the water that was originally in the cup, and something similar to that is what's going on here.