GAO: Almost Half of Bailed Banks Repaid the Government With Money “From Other Federal Programs” « naked capitalism

Story today on Naked Capitalism
The Government Accountability Office continues its subtle war on the talking point used by Treasury that “TARP made money”. Here’s the GAO, with a report out today.

As of January 31, 2012, 341 institutions had exited CPP, almost half by repaying CPP with funds from other federal programs. Institutions continue to exit CPP, but the number of institutions missing scheduled dividend or interest payments has increased.

Much of the government-supplied TARP funding (to small banks) was replaced by the Small Business Lending Fund passed in 2010, which Republicans called “TARP 2.0″.  The larger banks, however, where much of the bank-based credit creation in the economy takes place, didn’t use this program.  Instead, they got an implicit subsidy of between $6B and $300B a year from the widespread belief that the government will not let their bondholders lose money.
The talking point that the Troubled Asset Relief Program made money for the taxpayer is an important structural argument for the Treasury Department and the political elements in the Obama White House.  Yves Smith quoted an earlier GAO report on this phenomenon a few months ago.

Although Treasury regularly reports on the cost of TARP programs and has enhanced such reporting over time, GAO’s analysis of Treasury press releases about specific programs indicate that information about estimated lifetime costs and income are included only when programs are expected to result in lifetime income.

Our banking system is still reliant on the government for support.  Officials can claim that TARP made money, but it’s becoming increasingly clear that this is a way of avoiding a description of the actual policy framework.



GAO: Almost Half of Bailed Banks Repaid the Government With Money “From Other Federal Programs” « naked capitalism

NORTH CAROLINA ATTORNEY GENERAL POST CONFIRMS LIMITATIONS ON BANK SETTLEMENT WITH ATTORNEYS GENERAL | Foreclosure Defense Nationwide - Mortgage Foreclosure Help - Free Advice

NORTH CAROLINA ATTORNEY GENERAL POST CONFIRMS LIMITATIONS ON BANK SETTLEMENT WITH ATTORNEYS GENERAL | Foreclosure Defense Nationwide - Mortgage Foreclosure Help - Free Advice

Servicer misconduct and housing crisis

Editor’s Note: It seems that we can’t go three months without hearing about yet another species of misconduct by mortgage servicers that shifts losses onto the lienholders they are supposed to protect. We’ve read reports about force-placed insurance, inflated appraisal and maintenance fees, robosigning and other foreclosure irregularities, interference with loan mods and short sales due to second lien holdings, and, most recently, reports of the ongoing collection of fees by servicers for loans that have already been liquidated. Why do we seem to be facing a near-constant stream of news stories about mortgage servicers behaving badly? It turns out that this problem is nothing new, and traces back to a fundamental issue that we discuss at length in Way Too Big to Fail - misalignment of incentives. In this revealing guest post, former insider Steve Ruterman draws on his experiences to illustrate the roots of this fundamental problem. – IM

These experiences with servicers have led me to believe that the current mortgage market meltdown, documentation deficiencies, robosigning and related foreclosure problems all stem from the same cause: the complete collapse of any regime of internal controls at mortgage originators, sellers and servicers resulting from a misalignment of incentives. Once the loan underwriter sells all of its originations, and expects to do so in the future, it concludes that it can do without the internal control provided by things like underwriting guidelines. In fact, it finds that it can dispense with all of its former internal controls, which only cost it money.

Once all internal controls are dispensed with, management and employees pursue the incentives given them by the owners, and you get the fiasco in the mortgage markets we are living with today.

read the full article here The Subprime Shakeout