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Former TARP Inspector General Neil Barofsky on the government’s rising estimates of the cost of TARP.
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Another day another jump in the taxpayer bills get this treasury now says the TARP program has cost us more than expected.
The latest numbers show that our -- has climbed almost 48 billion dollars that is almost four to have billion dollars more than the last time -- give us an update.
So what gives why can't the government is numbers straight to -- inside scoop I'd like bringing overall steep former special inspector general for TARP and author of the new book.
Thanks for joining us thanks for having me so what's the deal with the numbers what are they.
To comment.
Well apart is even -- number that you said is actually not the TARP bill.
It's actually -- the actual TARP projected cost -- fifteen billion dollars more than that.
What they do is they watered down by taking some other bailout money that had that existed for AIG before TARP was even enacted in any throat -- that number to try to bring down the number make it look better than it is.
But the reason why changes is that as the they -- progressed.
If we moved out a lot of the government's interest out of preferred shares of stocks and loans into common stock so now as the stock of GM RA IG goes up or down -- so -- -- projected losses so it's really a function of taking those riskier positions that are going to be driven by market forces in GM.
You know hasn't been doing so well lately and -- -- for the number goes up.
You know now we have the benefit of hindsight -- we can sit on the sidelines and say whether or not any of this made sense in retrospect.
What mistakes do you think were made with TARP what would you have done differently.
We -- overwhelmingly -- -- that says to talk about the book is that TARP was supposed to do a lot more than just rescue the banks and preserve a broken status quo.
It was supposed to treasury promised congress required them to do a lot more like.
Helping to -- restore lending and bringing back the overall economy a helping struggling homeowners by preserving homeownership all of these were specific goals of -- And decision after decision was made to -- in those goals and instead.
Just to keep helping the big bank in Austria maybe that's because it's hard for the government to do all those things I mean you talk about helping out struggled over struggling homeowners.
With this money but that's a function of what the market should -- When I being looked.
You know this this bill is passed the idea that there would be government subsidies to help fix that market and treasury you know announced the present announcer gonna help up to four million homeowners.
And we're gonna spend fifty billion dollars to do that.
Here we are years later.
I would just 20% of that -- met and they've always -- -- spent less than four billion dollars.
So I mean this was but -- dad and house warm money and bad policy -- but -- spending more money really have helped or -- these problems that the government can't fix that's what I'm getting.
I'll with a well designed program -- would be money that would be well spent in the did the returns in the economy.
Would -- when -- got what could we have done for homeowners that would have been better I mean this there's a real cost to this including.
You know continuing plummeting housing prices unemployment I mean you people lost -- In dollars wiped out -- that how could the government injecting money prop up the housing market in the -- -- -- like prices got too high.
So they had to bottom around the system had a cracked -- -- -- and that the government.
Tries to artificially stock that declined it just makes it go down slower.
Well that's what actually what did happen.
A more effective program where you do this principle on the loans.
-- so that people are not as underwater so they're able to sell their homes are able to tap their homes for equity to fund small businesses.
You know there there's a whole bunch of really good economic things that follow from -- principal reduction program.
And it was just never adopted -- -- a lot of benefits macro -- the economy and that's part of the problem.
Everything that was done really got the banks -- -- -- larger could not larger economy I'm sure that use our reasoning is speaking of the banks the larger economy use our recently that the head of the FH at pace said that there is no proof that reducing principal.
Helps the problem and in fact he didn't want to do it you know want Fannie Mae and Freddie Mac to go -- and do that.
After it was shut down the throats of banks so there's a situation where banks were forced to do something and the government itself doesn't want to do because they say there's no economic -- that would help the housing market well this is one regulator -- -- the economic experts the -- now the analysts.
You know Republican conservative liberal -- its principal reduction.
As being one of the things that helped suppress the economic recovery.
And the government had an opportunity so but but more -- -- that it's what they promise to do so we're still a democracy and when congress passed the TARP bill.
They required in treasury promised they would use the money to help homeowners.
And they broke that promise -- because a good idea or bad idea in a democracy when you give.
The Treasury Department.
Axis -- 700 billion dollars of taxpayer money based on a promise to do something and they don't do something.
That's a failure and I think we're seeing that failure and in where economy is today so that's what we should have done differently have we set ourselves up for our.
This -- happen again in the future where do you think the biggest danger is when you're looking back at financial crisis where is the biggest danger ahead.
All of these things that we did with about as we preserve the too big to fail banks that otherwise would have been headed toward towards collapse.
-- then Lehman.
And -- Lehman and then we actually made them bigger through government policy through funding is in part through -- and through through other government policies and other sweetheart deals.
Other big banks -- 125%.
Bigger than -- -- before the crisis do you think they should have been allowed to fail.
I think that -- -- we needed to rescue them to a certain -- prevent a bigger destruction of the economy of the potential Armageddon that they're warning about.
But then we need to do something to fix the system -- I think we need to break them up.
They are too big to fail and all those bad incentives that were there before leading to the the financial crisis.
Are still in place and if we leave them there those incentives are gonna drive us to accumulate more risk.
And we're still a position where anyone of these banks were to -- they could bring the entire economy down with them so we're still in -- and poses a bailout nation so really we're no better off we didn't break them up.
And that's what we should have.
And some ways we're worse off because they're bigger more dangerous -- their political power stronger than ever.
And if we don't do something about this we are on the path to another financial -- retrospect maybe letting them fail would've been the right decision because.
You know they -- that they wouldn't be around the other ones would've learned a lesson from.
-- but the problem was that there was a real good chance that not just one would fail.
That all of them would come down with them I remember Hank Paulson -- that he thought Morgan Stanley was days away -- Ben Bernanke told me that Goldman Sachs would have gone after that and then it was possible that all of the big banks would have failed.
People would be able to get cash rather ATMs unemployment shoots up to 2.5 percent.
On it would have been -- very very rough road according to these experts.
And you know when I got down to Washington that panic was real they may have been wrong.
But I think that -- expressions appear were were honest you know there's a lot for us to disagree that we should do this again seeing your book it's fantastic.
And I get a lot of purchasing -- about the treasury you really -- and attacks and there's a good luck and thank you so much coming on we appreciate it thanks trap me.
