RandomGuy
03-30-2011, 01:33 PM
WASHINGTON—In his final day on the job, a federal bailout watchdog squabbled publicly with a Treasury official over the legacy of the $700 billion Troubled Asset Relief Program as both individuals testified before lawmakers.
Neil Barofsky, the departing special inspector general for TARP, warned that the same "too big to fail" firms that nearly brought down the financial system in 2008 have become bigger and more interconnected and continue to maintain an unfair advantage over smaller competitors.
The federal bailout also fell far short in helping Main Street by encouraging greater bank lending or assisting enough homeowners with troubled mortgages, he said, speaking before a House Oversight and Government Reform subcommittee. He called a TARP-funded mortgage modification program a "colossal failure." The House voted Tuesday evening to end the program.
"TARP's most significant legacy may be the exacerbation of the problems posed by 'too big to fail,' particularly given the manner in which Treasury executed the bailout, largely sparing executives, shareholder, creditors and counterparties, reinforcing that not only would the government bail out the largest institutions, but would do so in a manner that would do little harm to the responsible stakeholders," Mr. Barofsky said.
But Timothy Massad, Treasury's acting assistant secretary for financial stability who testified later at the same hearing, rejected the idea that TARP's main legacy was to perpetuate the "too big to fail" problem.
"TARP was necessary to respond to the worst financial crisis we faced in decades," he said in his remarks. "Its most significant legacy is that it, combined with a variety of other government actions, helped save our economy from a catastrophic collapse and may have helped prevent a second Great Depression."
Mr. Massad also stressed TARP achieved its aims at a fraction of the expected cost.
TARP was launched by the Bush administration in fall 2008 at the height of the financial crisis. It was initially estimated to cost as much as $700 billion, though the Congressional Budget Office now estimates it may cost as little as $19 billion.
In addition, Treasury officials are expected to announce Wednesday that TARP now has $6 billion more in bank repayments than taxpayers lended financial institutions during the crisis.
Mr. Barofsky cautioned that overall estimates distract from TARP's "considerable nonfinancial costs" that may be significantly higher.
Turning to last year's Dodd-Frank law, Mr. Barofsky warned the financial-regulatory overhaul has "clearly failed" to damp market expectations that the government will bail out systemically important firms.
Credit-rating firms continue to give large financial institutions higher credit ratings based on the existence of an implicit government backstop, while creditors in turn give those firms access to debt at a price that doesn't fully account for the risks created by their behavior, he said.
Mr. Barofsky's remarks struck a chord with Rep. Patrick McHenry (R., N.C.), chairman of the subcommittee, who said Dodd-Frank "reinforced the bailout culture, perpetuated the moral hazard of government intervention and tipped the economic scales for a few at the expense of growth and competition."
But Mr. Massad said Dodd-Frank provides that taxpayers won't fund any future wind-down of failed firms. Under the law, the Federal Deposit Insurance Corp. has the authority to liquidate a failed nonbank financial firm and impose those costs on creditors and shareholders.
If the costs can't be imposed on creditors and shareholders, regulators will impose assessments on large financial institutions, he said.
Rep. Mike Quigley (D., Ill.), asked if the Treasury was concerned about the "relative disadvantage" community banks face compared to large financial institutions that are perceived as too big to fail.
"The Dodd-Frank act is meant to provide us with tools to level the playing field," Mr. Massad said, noting it allows regulators to implement heightened capital, leverage and liquidity standards on large banks. "There's a lot of work to be done to implement that, but I think it does give us some tools to address that very problem."
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:bang
:flipoff
:vomit:
:nutkick:
:soapbox:
:pimpslap
:frying:
:cuss
:pctoss
:ihit
Fuckity, fuck fuck, ... ARGGGH!
Any solutions anyone? anyone?
Neil Barofsky, the departing special inspector general for TARP, warned that the same "too big to fail" firms that nearly brought down the financial system in 2008 have become bigger and more interconnected and continue to maintain an unfair advantage over smaller competitors.
The federal bailout also fell far short in helping Main Street by encouraging greater bank lending or assisting enough homeowners with troubled mortgages, he said, speaking before a House Oversight and Government Reform subcommittee. He called a TARP-funded mortgage modification program a "colossal failure." The House voted Tuesday evening to end the program.
"TARP's most significant legacy may be the exacerbation of the problems posed by 'too big to fail,' particularly given the manner in which Treasury executed the bailout, largely sparing executives, shareholder, creditors and counterparties, reinforcing that not only would the government bail out the largest institutions, but would do so in a manner that would do little harm to the responsible stakeholders," Mr. Barofsky said.
But Timothy Massad, Treasury's acting assistant secretary for financial stability who testified later at the same hearing, rejected the idea that TARP's main legacy was to perpetuate the "too big to fail" problem.
"TARP was necessary to respond to the worst financial crisis we faced in decades," he said in his remarks. "Its most significant legacy is that it, combined with a variety of other government actions, helped save our economy from a catastrophic collapse and may have helped prevent a second Great Depression."
Mr. Massad also stressed TARP achieved its aims at a fraction of the expected cost.
TARP was launched by the Bush administration in fall 2008 at the height of the financial crisis. It was initially estimated to cost as much as $700 billion, though the Congressional Budget Office now estimates it may cost as little as $19 billion.
In addition, Treasury officials are expected to announce Wednesday that TARP now has $6 billion more in bank repayments than taxpayers lended financial institutions during the crisis.
Mr. Barofsky cautioned that overall estimates distract from TARP's "considerable nonfinancial costs" that may be significantly higher.
Turning to last year's Dodd-Frank law, Mr. Barofsky warned the financial-regulatory overhaul has "clearly failed" to damp market expectations that the government will bail out systemically important firms.
Credit-rating firms continue to give large financial institutions higher credit ratings based on the existence of an implicit government backstop, while creditors in turn give those firms access to debt at a price that doesn't fully account for the risks created by their behavior, he said.
Mr. Barofsky's remarks struck a chord with Rep. Patrick McHenry (R., N.C.), chairman of the subcommittee, who said Dodd-Frank "reinforced the bailout culture, perpetuated the moral hazard of government intervention and tipped the economic scales for a few at the expense of growth and competition."
But Mr. Massad said Dodd-Frank provides that taxpayers won't fund any future wind-down of failed firms. Under the law, the Federal Deposit Insurance Corp. has the authority to liquidate a failed nonbank financial firm and impose those costs on creditors and shareholders.
If the costs can't be imposed on creditors and shareholders, regulators will impose assessments on large financial institutions, he said.
Rep. Mike Quigley (D., Ill.), asked if the Treasury was concerned about the "relative disadvantage" community banks face compared to large financial institutions that are perceived as too big to fail.
"The Dodd-Frank act is meant to provide us with tools to level the playing field," Mr. Massad said, noting it allows regulators to implement heightened capital, leverage and liquidity standards on large banks. "There's a lot of work to be done to implement that, but I think it does give us some tools to address that very problem."
-----------------------------------------
:bang
:flipoff
:vomit:
:nutkick:
:soapbox:
:pimpslap
:frying:
:cuss
:pctoss
:ihit
Fuckity, fuck fuck, ... ARGGGH!
Any solutions anyone? anyone?