In a report filed at the Los Angeles Times's Politics Now blog earlier today, Washington Bureau reporter James Oliphant relayed a number of whoppers delivered by Vice President Joe Biden without anything resembling a challenge. In Part 1, I noted how Biden, who in August described Tea Party sympathizers as "terrorists" and in September as "barbarians," today spoke in complimentary terms of how much the Occupy Wall Street crowd has in common with them. In Part 2, I dealt with the Veep's hit at financially struggling Bank of America for having the nerve to try to recover some of what the Dodd-Frank "financial reform" legislation took away by charging some customers a $5 monthly fee for debit-card use.
This final part will deal with Biden's rendition of how the "bank bailout" portion of TARP operated, which is quite different from the reality. The relevant excerpt from Oliphant, which necessarily overlaps the first two parts, follows (bolds are mine throughout):
... “There’s a lot in common with the tea party,” Biden said. “The tea party started why? TARP. They thought it was unfair we were bailing out the big guys.”
... “Banks are part of the problem in the economy,” he said. “The American people know -- they don’t guess, they know -- the reason the CEO of the Bank of America, or anybody in that business, is in the business is because they, that guy making 50,000 bucks bailed him out, bailed him out. Put his financial security on the line when his government said we’re gonna come up with a trillion-plus dollars to bail him out.”
Of Bank of America, Biden said, “At a minimum, they are incredibly tone deaf. At a minimum. At a maximum, they are not paying their fair share of the bargain here. And middle-class people are getting killed.”
The fact is that the TARP was twisted by Treasury Secretary Hank Paulson into something completely different than what was intended (or at least as advertised), and that the banks were forced to do his bidding whether they wanted to or not.
Here, from the TARP roll call vote -- which both President Obama and Biden supported -- is the description of what the law was supposed to encompass:
(A bill to provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, to amend the Internal Revenue Code of 1986 to provide incentives for energy production and conservation, to extend certain expiring provisions, to provide individual income tax relief, and for other purposes.)
The introductory section of the bill (full text here) makes it clear that congresspersons and senators believed they were voting for a measure involving purchases of "troubled assets," principally delinquent and defaulted-upon mortgages:
The Secretary is authorized to establish the Troubled Asset Relief Program (or ‘‘TARP’’) to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary, and in accordance with this Act and the policies and procedures developed and published by the Secretary.
The bill's specific definition of "troubled assets" was:
(A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability; and (B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress.
But Hank Paulson didn't do anything even resembling what the TARP law envisioned. Instead, less than two weeks later, as reported virtually uniquely on Tuesday, October 14 by CNBC's Dylan Ratigan and Charles Gasparino (video here), he (figuratively, we assume) "put a gun to their (big bankers') heads" and forced them to accept partial government ownership of their institutions:
Host Dylan Ratigan: Well we all know that obscene amounts of risk (were) taken inside of the banking system, leaving some banks crippled, some banks frozen, and other banks with huge opportunities.
Uh, many of the banks didn’t want to be tainted with the government bailout funds because they didn’t want to be mistaken for a fool when they actually felt that they were the smart one that didn’t do it.
Well Hank Paulson said “The heck with that.” He stuck all of them with some of the bailout money. And he said “Listen, we’re going to reset the clock here and move forward.” Charlie, how are the banks that felt they basically didn’t commit the crime, as it were, of excess or reckless risk, uh, respond to the fact that even they will be stuck with this capital?
Charlie Gasparino: Well y’know they were all kind of stupid to some extent …..
….. the Treasury Secretary Hank Paulson put all these egos in the room, and basically put guns to their heads, forcing them to take the money to bolster the banking system.
Some of the firms say they didn’t want the cash, but it’s pretty clear that all of them did need to take the cash, given the continued upheaval in the banking system that crushed shares last week of Morgan as well as Goldman Sachs and just about everybody else.
So this is essentially, uh, Dylan, a case where, y’know, you can deny you have any problems. Even the best-capitalized banks have problems. They own this stuff. And Paulson at one point said, “Listen, if you don’t want it, it doesn’t matter, gun to your head, you gotta take it.”
Ratigan: Yeah, whether you think you’re sick or not, you’re taking the medicine.
Gasparino: Because you’re sick anyway.
Though there is no good reason to doubt what Ratigan and Gasparino reported -- no one to my knowledge has ever challenged them -- there was virtually no media coverage of this monumental and possibly illegal shift by Paulson, as well as almost no mention of its coercive nature. In terms of coercion, I was only able to find a single Associated Press item, which noted it quite cryptically:
Executives of the country’s biggest banks were summoned to a remarkable meeting at the Treasury Department on Monday to be briefed on the plan. Paulson basically told the bank CEOs that they had to accept the government stock purchases for the good of the U.S. economy.
Apparently, "or else." It's not difficult to imagine the tremendous pressure Paulson, his lieutenant at the Federal Reserve in New York Tim Geithner, and any number of other regulators could have brought onto any bank refusing government "investment."
This is all relevant to Biden's bailout-related comments because:
- He contends that "anybody in that (banking) business, is in the business" only because they were bailed out. As Ratigan and Gasparino made crystal clear, some of the banks involved didn't believe they needed the money. Assuming they're correct, they weren't "bailed out." They were "forced in." Bank of America was likely one of the institutions which needed the bailout money, but that's beside the point in the context of Biden's comment, which smears the entire banking industry.
- He accuses B of A of "not paying their fair share of the bargain here." Well Joe, you seem to have forgotten that the bank paid all of their bailout money back, with interest (actually preferred dividends) almost two years ago, and that whatever "bargain" was formally struck is long since over -- or should be. But of course, it's never over when government authoritarians and their supportive mobs are involved.
The LAT's Oliphant is by no means the only person who is ignoring these pertinent facts, of course. But it's long past time that someone besides the talking heads in an obscure CNBC video and yours truly note what really happened in October 2008. Like so many others before him, Oliphant whiffed.
Cross-posted at BizzyBlog.com.