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TARP II Demands Real, Thorough Debate

By: Senator David Vitter (Diary)  |  January 15th, 2009 at 02:20 PM  | 

RESIZE: AAA

On Monday, President Bush made a request on behalf of the incoming administration to release the second half of the $700 billion that Congress authorized last fall under the Troubled Assets Relief Program. I have some serious concerns with these funds being released, and I believe that we need to think very seriously on this matter.

For this request to be approved, Congress is required to do nothing, and a formal resolution of disapproval must be passed if we are to prevent these funds from being released. This week, I introduced a disapproval resolution co-sponsored by U.S. Sens. Bunning, DeMint, Inhofe, Sessions, Barrasso, Brownback, Enzi, Cornyn and Roberts, and I urge my other colleagues to do the same. TARP has raised far more troubling questions than it has provided answers. And surely, at a minimum, we need to see plans for how the second half of this $700 billion will be used before we approve it.

I have a number of significant concerns with TARP as it stands, beginning with the fact that the entire rationale on which it was presented to Congress was thrown out within days of its passage. To date, it has become apparent that the plan has not achieved one of its pivotal goals – making credit available to individuals and businesses.

I also fail to see the logic in spending $350 billion when we are just about to begin consideration of a $1 trillion stimulus plan. The last thing we need is more debt upon debt, deficit upon deficit. Certainly we have to act on our nation’s economic troubles, and certainly the federal government should help do that. But as we consider spending another $1 trillion, why should we continue spending money on a program that clearly hasn’t worked?

I am particularly concerned with what I see as TARP’s significant lack of accountability. As it stands, the Department of the Treasury cannot clearly detail how they have spent the first half of the money, and the recent auto bailouts indicate that the program has devolved into little more than a slush fund. Yet we are now expected to release another $350 billion without knowing how it will be spent, let alone how the first half was spent.

I believe it is apparent that any move to release further funds should include a real and serious discussion of how the money will be spent. We cannot afford, and our kids and grandkids cannot afford, for us to continue digging our nation deeper and deeper into debt.

Before we move to approve this money, we need to have a thorough discussion about this program and the questions that it raises. We need to see how this second half will be spent, and we need to ensure that the same mistakes will not be repeated. The next step demands extreme caution, and Congress must consider the very real ramifications of approving these funds.

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  • 1SGinTN

    Are there any Democrats willing to sign on to this resolution? How many Republicans will not?

    • Steve W

      It is important that the Senate Republicans hold the Democrats accountable for every action they take.

      I’m not an obstructionist – if it’s a good law – or a great idea – it will be so after it is discussed, debated, fought-over, and the consequences identified (as best you’re able). If it is not – then this same discussion, debate, fighting and consequence identification will show it to be so.

      I am inclined to think that most Americans want good laws – they want thoughtful legislation that will bring about the greatest good for the entire country – and they don’t really care much about the initial that comes after the name.

      So thanks again for co-sponsoring this legislation – let accountability and responsibility ring out. The consequences are too dire otherwise.

      • Brian Darling

        Too bad only 41 other Senator agreed with you that giving Treasury another $350,000,000,000 is a terrible idea. At least there are 41 Senators who don’t agree with President Bush that they should”chucked aside..free-market principles.”

        • 6eorge Jetson

          …for a clear explanation of the principles behind TARP I.

          He should have said something along the lines that there needs to be a price for the price of money, albeit one you might not like.

          I’d like to see how much of the buzz “banks aren’t lending” is really “borrowers aren’t borrowing at today’s price (rate) of money.” I don’t like what I can sell my stock mutual funds for today. But just because I don’t like the price today doesn’t mean I should be able to sell them at the prices of last spring by edict.

          Call Bush/Paulson/Bernanke Inspector Cleusau if you will, but I think the result they will have engineered is about as good as one could hope for.

          (Fall 08) Avoid the complete financial shutdown including money mkt instruments
          (Spring 09) Leaving the rate of Treasury bonds (spreads to Treasurys), the price of money, at decades long highs, but at least they exist.
          (Thereafter) Watch capital be attracted to the decades-long high spreads in govt backed agency mortgages. (This is a very attractive investment, much like the near-one thousand singles hitter in the softball beer leagues where scores of 20-18 are common.)
          (Thereafter) Once the very low hanging fruit of the decades-long highs in high quality spreads are picked over and disappear, watch capital start to seek out the higher spreads in the lower quality credit/loans.

          Or, to increase the quantity of loans, should we have the political class in gov’t dictate the terms of those loans? If so, we should just set up a govt loan shop and accept the non-economic political influences that will determine qualifications.

    • Praying

      Surprised I haven’t read it on Red State, but my internet homepage Yahoo news headline said congress authorized second TARP bailout. 45 Dems + 6 Republicans + 1 independent voted FOR and 33 Republicans, 8 Dems, and 1 independent voted AGAINST releasing funds. Hold on to your wallets – it’s gonna be fun now! (NOT) Looking for roll call – want to know who are the 6 scabs (McCain was reportedly not one who voted for – I’m shocked)

  • Senator David Vitter

    The original TARP vote had 10 Democrats vote against it: Sens. Cantwell, Dorgan, Feingold, Johnson, Landrieu, Nelson, Sanders, Stabenow, Tester and Wyden. I would hope that they would also join me in support of my disapproval resolution.

    • BlueLandRed

      need a vigorous debate on this second tranche of money. However, I see little hope of actually stopping it, as President Obama has already stated he will veto the attempt, so you’ll need 2/3 of the members to vote for the override. I just don’t see how that’s possible with both houses controlled by Democrats.

      Also, in theory at least, the money it not being “spent” but invested, with the expectation that some day we’ll be repaid. Who knows if and when that will actually happen. Unfortunately, the Treasury is staying mum on exactly where the money is going and most of the deals are apparently “super serkit” – which is really beyond annoying. Hopefully the new administration will be more forthcoming with information.

      • aesthete

        At least not by GM/Chrysler, and probably not by Ford. They’re barely surviving, and without significant change and reorganization, that’s the way they’re going to be for a number of years.

    • $peciallist

      :) When can we expect your presser/….where I’m confident you will Smackdown this total waste of our money…

      Please rise up and lead on this issue….this is the Most sincere pumpkin patch…

  • bs

    I am particularly concerned with what I see as TARP?s significant lack of accountability. As it stands, the Department of the Treasury cannot clearly detail how they have spent the first half of the money, and the recent auto bailouts indicate that the program has devolved into little more than a slush fund. Yet we are now expected to release another $350 billion without knowing how it will be spent, let alone how the first half was spent.

    I cannot tell you how much I agree with this. It is our money that they are sucking up (and I’ve commented on this before, and others have poo-poo’d my opinion, but tough – I still hold it) and we deserve an explanation of where it’s going.

    NO ACCOUNTABILITY, NO FUNDS. PERIOD.

    Thank you, Senator, for standing up for this.

    • Vladimir

      Our financial and monetary systems rely on nothing more heavily than the confidence of the people.

      There seems to be no plan from the Democrats at all, just shovel money in the general direction of the problem. Personally, I’d have more confidence if Larry, Moe and Curly were at the helm, in place of Barry, Nancy and Barney.

      Speaking as a Louisianian, it’s heartening to see that both of our Senators may play a role in putting a stop to this nonsense. Best of luck to you.

  • izoneguy

    n/t

    • 6eorge Jetson

      Whether we need more TARP II medicine is separate issue, and my opinion is not now under Paulson/Bush and probably never under Geitner/Obama.

      As our own Francis Cianfrocca points our here at Obama Reinterprets the TARP–Dont Be Fooled/, where the Treasury injected capital into the banking system via the issuance of preferred stock, it traded much needed capital today for 5% interest for the first five years and 9% thereafter until the principal is redeemed by the banks by returning the principal back to the Treasury.

      Francis very clearly explains the distinction between the TARP I stablilization/investment fund versus ordinary “all sales final” spending.

      Think about if you had $500 and you blew it on dinner, movies, and presents for some girl you?re trying to impress. That?s one kind of spending. The other way you could spend it is to buy stock in a business corporation.

      Whatever you expect to get out of blowing your money on fun and games, you certainly don?t expect to get your money back. When you invest in stock, you DO expect to get your money back.

      …(so) keep in mind how the TARP funds are being used. They?re not being used to fund spending, consumption or pork-barrel projects. Those monies have been added to the balance sheets of financial institutions. They represent senior claims on the assets of the institutions. Yes, there is the potential for losses on these capital positions, but it?s not the same as ordinary spending.

      That?s the fundamental difference between the disposition of the TARP I funds, which Obama professes to be so disappointed in, and ordinary spending. The worst-case estimates I?ve seen suggest that total taxpayer exposure created by the TARP I will probably amount to $50 billion, maybe $100 billion. It?s just as likely that the liability will be zero or negative, suggesting a positive return on the taxpayer investment.

      Francis also explains the urgency and the need for TARP I. As Bush got no credit for the complete lack of terrorist attacks on US soil since 9/11, Paulson is not getting any credit for avoiding a world-wide shut down.

      The TARP was a break-glass-in-case-of-fire program, originally conceived as a last-ditch response to an extreme emergency. That emergency materialized in mid-September as the institutional money markets crumbled in the wake of the Lehman Brothers bankruptcy.

      On balance, I was in favor of the original TARP plan, even though it created tremendous moral hazard by permitting certain companies to stay in business after making terrible mistakes. The true goal was to keep the global banking system from collapsing, as one trillion dollars in losses nearly wiped out the industry?s entire capital.

      If we had allowed that to happen, we might today be looking out at a world in which quite a few of the largest banks in the world were out of business and simply gone. Barack Obama?s stimulus plan would have been a nonstarter because there wouldn?t have been anyone to even give the stimulus money to. Things really were potentially that bad.

      It?s true that the implementation of the TARP plan was improvised. But for all Obama?s cheap criticism, there?s no way he could have done any better. In the end, the plan of forcing large banks to give issues of preferred stock to the Treasury in return for TARP cash was a fairly reasonable way to assure market participants that these banks would not fail.

      And then Francis addresses the component of TARP I where Bush/Paulson/Bernanke so miserably failed, despite the successes of their policies. Communication: Why do the American people blame this all on Republicans? Why is it SO misinterpreted? (And tangentially, why did McCain fail so miserably in his feeble and reluctant attempts to explain Democratic culpability in their blockage of attempts to reign in Fannie and Freddie?) Just as Bush gets no credit for the complete lack of terrorist attacks on US soil since 9/11, Paulson is not getting any credit for avoiding a world-wide shut down.

      TARP proponents Hank Paulson and Ben Bernanke initially proposed TARP to Congress in closed sessions that scared Hell out of everyone who heard them. Since time was of the essence, no thought whatsoever was given to explaining the program to the public, much less selling it.

      This was a PR failure of gargantuan proportions, right up there with the worst ever. Almost instantly, the people were told by the news media that Wall Street was looking for a $700 billion handout from taxpayers to ensure that the best-paid people on earth would get their multi-million dollar bonuses this year, even though they were losing money. And that, for some unexplained reason, the world would end if we didn?t give them what they wanted.

      To this day, many people think that?s what the TARP plan is all about.

      and then warns of Obama/Frank/Dodd et. al. truly diverting funds to non-financial intermediation targets in much larger chunks than the $15 billion that was so wrongly diverted to the auto industry. Let the criticism fly, but keep in mind that under Bush the misguided total was “only” $15 Billion. You ain’t seen nothing yet.

      But that?s not how Obama understands the TARP. Remember, this man is all about fiscal stimulus. He wants to spend as much borrowed money as he possibly can, as fast as he can, to buy whatever he can think of, because he?s become convinced that somehow that?s a good idea.

      Obama is trying to blow as much as a trillion dollars on dinner, movies, and presents for favored governors and other politicians. He?s disappointed because Paulson chose to use the TARP narrowly and efficiently, for financial stabilization.

      What Obama is trying to do is to add the remaining $350 billion in TARP funds to his New New Deal program. He doesn?t want to invest it. He wants to spend it.

  • jonnot

    not only for your stance on this issue; not only now, but more importantly, back in September, when this “bailout” was first thrust upon us. I also thank you for being the one committee member who had the courage to ask Secretary of State nominee Hillary Clinton anything of substance during the hearings–and especially for your vote for non-approval when those questions were not answered. In fact, Sir, you were the ONLY member–republican OR democrat–to have voted honesly. For that, I commend you.