I had a long talk with my friend who’s a higher-up at a hedge fund about TARP and the new TARP tax being proposed. He’s against the tax (though it would be good in a way for hedge funds since they wouldn’t be taxed) because he thinks it would be seen as a form of bailout insurance payment and would just encourage banks to think they’ll get bailed out next time, which in turn would encourage them to lever up on dangerous crap since there’s no consequences when that stuff blows up. He also said that nearly all the banks have paid back their TARP money with interest anyway.
He said that honoring AIG deals at 100 cents on the dollar was the most absurd deal he’d ever seen in lis life and that, in all likelihood, it had something to do with the fact they owed a lot to Goldman and Goldman people were running the Treasury. I was happy to see Congress question this specifically:
In his opening remarks, Edolphus Towns, the chairman of the House Oversight and Government Reform committee, said that the Federal Reserve was too secretive in its handling of the bailout.
“Secrecy leads to distrust and the American people now distrust what happened in these bailouts,” Mr. Towns said. He questioned why the banks who had deals with A.I.G. were paid out at the full value. He pointed out that in private industry, concessions are sometimes made in deals if one of the companies is in trouble. But that’s not what occurred in A.I.G.’s deals with banks like Goldman Sachs and Merrill Lynch.
“The rest of Wall Street came by and looted the corpse,” Mr. Towns said.
Goldman and the others would have happily taken 60 cents on the dollar for AIG obligations (and they would have been lucky to get it). Since Goldman was owed $13 billion from AIG, this would have meant $7.8 billion instead of $13 billion so they would have got $5.2 billion less. That’s about one year’s profit for them so it wouldn’t have killed them.
This isn’t about Matt Taibbi conspiracy theories and nonsense about $24 trillion in government obligations, but there’s no way around the fact that it’s troubling for a Treasury department program run by Goldman people (Paulson, Kashkari) to have given Goldman such a sweetheart deal.