As the Bush administration waned, the Treasury shoveled more than a quarter of a trillion dollars in tarp funds into the financial system—without restrictions, accountability, or even common sense. The authors reveal how much of it ended up in the wrong hands, doing the opposite of what was needed. Full Story »
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Last October, Congress passed the Emergency Economic Stabilization Act of 2008, putting $700 billion into the hands of the Treasury Department to bail out the nation’s banks at a moment of vanishing credit and peak financial panic. Over the next three months, Treasury poured nearly $239 billion into 296 of the nation’s 8,000 banks. The money went to big banks. It went to small banks. It went to banks that desperately wanted the money. It went to banks that didn’t want the money at all but had been ordered by Treasury to take it anyway. It went to banks that were quite happy to accept the windfall, and used the money simply to buy other banks. Some banks received as much as $45 billion, others as little as $1.5 million. Sixty-seven percent went to eight institutions; 33 percent went to the rest. And that was just the money that went to banks. Tens of billions more went to other companies, all before Barack Obama took office. It was the largest single financial intervention by Treasury into the banking system in U.S. history.
Why did this happen? Ostensibly, Treasury concluded that the task of buying up toxic assets would take too long to help the financial system and unlock the credit markets. So, theoretically, something more immediate was needed—hence the plan to inject billions into banks, whether or not they wanted or needed the money. To be sure, Citigroup and Bank of America were in precarious condition. So was the insurance giant A.I.G., which had already received an infusion from the Federal Reserve and ultimately would receive more tarp money—$70 billion—than any single bank. But rather than just aiding institutions in distress, Treasury set out to disburse money in a more freewheeling way, hoping it would pass rapidly into the financial system and somehow address the system-wide credit crunch. Even at this early stage, it was hard to escape the feeling that the real strategy was less than scientific—amounting to a hope that if a massive pile of money was simply thrown at the economy, some of it would surely do something useful.
