That's the message top economists have for the US government dealing with a bloated and ineffective financial system in breakdown. The story can be found here.
Highlights:
Columbia University professor Joseph Stiglitz and MIT professor Simon Johnson warned the Joint Economic Committee of Congress that the current government policy of propping up troubled financial giants could impede an economic recovery.
They each said spending taxpayer dollars freely on behalf of struggling big banks risks drowning U.S. productive capacity in debt -- while handing what amounts to an enormously costly subsidy to politically powerful financial sector insiders.
If the Obama administration fails to hold troubled banks accountable for their problems, the U.S. could face a lost decade of economic growth like Japan's in the 1990s, they said.
Federal Reserve Bank of Kansas City President Thomas Hoenig, said policymakers must allow troubled firms to fail rather than propping them up, a la AIG (AIG, Fortune 500). He said banks must be treated consistently, regardless of their size or connections, for the sake of restoring confidence to markets and normal function to the economy.
"Rather than letting the market system objectively discipline the firms through failure and stockholder loss," Hoenig said of the current approach to bailouts, "we tend to micromanage the institutions and punish those within reach."
Tuesday, April 21, 2009
20 Criminal Probes and 6 Audits Underway on TARP Money Usage
Neil Barofsky, the special inspector general overseeing the Troubled Asset Relief Program, released a 250-page report detailing a long list of concerns about government efforts to prop up hundreds of banks, Wall Street firms and auto companies. There's not a lot in this story on CNN, or this article in the Wall Street Journal, nor this article on the Washington Post. The report in total was just posted to the oversight group's web site here.
Other reports from the oversight group are here: http://www.sigtarp.gov/reports.shtml
Highlights from the report:
The Troubled Asset Relief Program (“TARP”) now includes 12 separate, but often interrelated, programs involving Government and private funds of up to almost $3 trillion — roughly the equivalent of last year’s entire Federal budget.
SIGTARP has initiated, to date, almost 20 preliminary and full criminal investigations. Although the details of those investigations generally will not be discussed unless and until public action is taken, the cases vary widely in subject matter and include large corporate and securities fraud matters affecting TARP investments, tax matters, insider trading, public corruption, and mortgage-modifi cation fraud.
SIGTARP’s mission is to advance economic stability through transparency, coordinated
oversight, and robust enforcement, thereby being a voice for, and protecting
the interests of, those who fund TARP — i.e., the American taxpayers.
Other reports from the oversight group are here: http://www.sigtarp.gov/reports.shtml
Highlights from the report:
The Troubled Asset Relief Program (“TARP”) now includes 12 separate, but often interrelated, programs involving Government and private funds of up to almost $3 trillion — roughly the equivalent of last year’s entire Federal budget.
SIGTARP has initiated, to date, almost 20 preliminary and full criminal investigations. Although the details of those investigations generally will not be discussed unless and until public action is taken, the cases vary widely in subject matter and include large corporate and securities fraud matters affecting TARP investments, tax matters, insider trading, public corruption, and mortgage-modifi cation fraud.
SIGTARP’s mission is to advance economic stability through transparency, coordinated
oversight, and robust enforcement, thereby being a voice for, and protecting
the interests of, those who fund TARP — i.e., the American taxpayers.
Wednesday, April 15, 2009
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