Special Inspector Neil Barofsky who independently oversees the $700 Billion Bailout Fund is expected to testify before Congress tomorrow. The quarterly report from the Office of the Special Inspector General for the Troubled Asset Relief Program is available at the official website.
In the 322 page report Special Inspector Barofsky states:
“While Treasury’s ultimate return on its investment depends on a host of variables that are largely unknowable at this time, TARP’s financial prospects are today far better than anyone could have dared to hope just two years ago”
As WTF Finance reported in its earlier article “Treasury Has (Manipulated) Paper Gains on Toxic Assets” it is naïve and very biased to come to the conclusion that the investments were of little to no cost, given that the manipulation of the market that allowed for the “recovery” to take place cost trillions of dollars that will be reflected in the future through inflation.
While the report suggests that future bailouts could occur if a major financial institution were to threaten the US Economy, it did surprise us that Mr. Barofsky admits to the following on page 6 of the report:
“While these statements and actions succeeded in reassuring troubled markets, they also did much more: by effectively guaranteeing these institutions against failure, they encouraged future high-risk behavior by insulating the risk-takers who had profited so greatly in the run-up to the crisis from the consequences of failure, and gave an unwarranted competitive advantage, in the form of enhanced credit ratings and access to cheaper credit and capital, to institutions perceived by the market as having an implicit Government guarantee. In many ways, TARP has thus helped mix the same toxic cocktail of implicit guarantees and distorted incentives that led to disastrous consequences for the Government-sponsored enterprises (GSEs) — the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”).”
That’s exactly why WTF Finance is against anti-free market policies as they favor certain organizations that have political ties to either the Government or the quasi-private Federal Reserve System. Big Government policies eliminate sound business practices as the fiscally responsible entities have no ability to compete with those that receive or can count on the preferential treatment by the Treasury, SEC, FDIC, or Federal Reserve System.