"What About Those Toxic Assets?"

The chief watchdog for the government's $700 billion bailout program says federal officials were...

The Treasury Department and the Federal Reserve lied to the American public last fall when they said that the first nine banks to receive government bailout funds were healthy, a government watchdog states in a new report released today.

Neil Barofsky, the special inspector general for the Troubled Asset Relief Program (SIGTARP), says that despite multiple statements on Oct. 14 of last year that these nine banks were healthy and only receiving government funds for the good of the country's economy, federal officials knew otherwise.

"Contemporaneous reports and officials' statements to SIGTARP during this audit indicate that there were concerns about the health of several of the nine institutions at that time and, as detailed in this report, that their overall selection was far more a result of the officials' belief in their importance to a system that was viewed as being vulnerable to collapse than concerns about their individual health and viability," Barofsky says.

On Oct. 13, after Congress had passed the $700 billion financial bailout program earlier that month, Treasury provided capital injections for nine institutions that together held over $11 trillion in assets: Bank of America, Citigroup, Wells Fargo, JP Morgan Chase, Goldman Sachs, Morgan Stanley, Merrill Lynch, State Street and the Bank of New York Mellon. As of June 2008, these nine banks accounted for around 75 percent of all assets held by U.S. banks.

In announcing the initial $125 billion provided to these banks, former Treasury Secretary Hank Paulson on Oct. 14 said, "These are healthy institutions, and they have taken this step for the good of the U.S. economy. As these healthy institutions increase their capital base, they will be able to increase their funding to U.S. consumers and businesses."

That same day, the Treasury Department, the Federal Reserve and the FDIC also released a joint statement reiterating that "these healthy institutions are taking these steps to strengthen their own positions and to enhance the overall performance of the US economy."

Barofsky finds, however, senior officials at the Treasury and the Fed had serious concerns about the health of some of these banks. Fed chief Ben Bernanke, for one, told the watchdog that the central bank believed each of the nine institutions faced certain risks given the economic environment.

"Senior government officials had affirmative concerns at the time the nine institutions were selected about the health of at least some of those institutions," Barofsky says. "The Federal Reserve had concerns over the financial condition of several of these institutions individually and for all of them collectively absent some governmental action. And former Secretary Paulson noted concerns about the outright failure of one of the institutions."

Since last October, the bailout has generated widespread outrage. While supporters say it saved the system from collapse, detractors say it helped only Wall Street and not Main Street, since banks have not boosted lending and unemployment and foreclosures have risen.

Barofsky, who last month called it "highly unlikely" that taxpayers would recoup their full investment, says the government's "inaccurate statements" last fall only made the program more controversial. (Read Full Article)

Nearly one year after Congress approved the $700 billion financial bailout, it was attacked by Republicans and fiscal watchdogs as an expensive failure that has not stopped home foreclosures or jobs from disappearing.

"This has been a failed program," Sen. Mike Johanns, R-Neb., said at today's Senate Banking committee hearing. "The very promises made to the taxpayer of what was going to happen with this money, in my judgment, have not been kept."

Even the recent improvements of the banks – for many an acknowledged success of the program – were questioned today. Warren said the bailout's original purpose – to buy up the toxic assets weighing down banks' balance sheets – was never fulfilled.

"The toxic assets remain on the books of the banks," she said. "The commercial real estate mortgages are a coming crisis. Small banks are continuing to fail. We were talking a year ago about too big to fail. We are now facing an industry that's more concentrated than it was a year ago and too big to fail is up on us now in a much larger sense."

"Until we get down to dirt, to something that's solid, that we can put our feet on, our financial institutions are standing in a secure place, we can't rebuild and know that we are safely past this crisis," Warren said.

"The question about how we're going to get these toxic assets out of here at a time when the real estate mortgage market is still in trouble and the commercial real estate mortgage market may be getting into more and more trouble – I'm not hearing the plan," she said.  (Read Full Article)

Several firms now participating in the Treasury's program to modify troubled mortgages have run into problems with federal or state regulators for their treatment of their customers over the years. Included are:

— Countrywide Home Loans Inc. , part of Countrywide Financial, the company that was one of the major forces behind the rash of risky mortgages and which Bank of America Corp. purchased in July 2008 .

According to a 2008 lawsuit by the Illinois attorney general and other states, consumers who fell behind on their mortgages and then called Countrywide were "shuffled from person to person and even department to department before reaching someone who can actually address their concerns." Even then, the lawsuit said, Countrywide demanded an upfront payment before working on a modification — and often, consumers paid up front even though there was no chance their loan could be reworked.

Beyond that, Countrywide refused to work with some homeowners. When one fell behind on her mortgage payment because she was being treated for breast cancer, her church raised money to help her out and sent the money to Countrywide. However, the company refused it because the check had been drawn on the church's account, the lawsuit said.

Other consumers were given modifications that actually raised their monthly payments. In one case, the attorney general's office had to intervene after Countrywide boarded up and changed the locks on a borrower's house before it had a legal judgment to do so.

In October 2008 , Illinois Attorney General Lisa Madigan and 10 other states announced that Countrywide (and its new owner, Bank of America ) had agreed to settle the case for $ 8.7 billion , the largest predatory lending settlement in history. Nationwide, about 400,000 homeowners were expected to get settlement funds to help them rework their Countrywide loans.

In announcing the Countrywide settlement, Bank of America said it has "committed significant resources and developed innovative programs to help as many Countrywide customers as possible."

Since then, the bank said it's surpassed projections for helping customers under the settlement agreement and Allen H. Jones , a Bank of America executive, said the bank is "committed to doing everything we can do keeping borrowers in their homes." (Read Full Article)

    Does anybody remember the "toxic assets" that needed to be taken off the books of the banks and other financial institutions that were "too big to fail"? Surprise! Those toxic assets are still on the books of now supposedly "healthy" banks and financial institutions! If the TARP money wasn't spent for toxic assets, making loans, or modifying mortgages to save homes from foreclosures, what the hell has the money been used for? The global banking cartel known as the US Federal Reserve Banks, along with it's lackey US Treasury Department has and is lying and misleading the American public about the current US financial crisis, a crisis that should and could have been avoided if the Fed was doing what it is supposed to do, proactively preventing another Great Depression. As I see it, The Fed saw this recession coming and deliberately let it happen because banks love the Keynesian economic government deficit spending policies. Financing wars and Big Government spending is how central banks make the most money. Lying to the American people is just a means to that end. In my opinion, the Federal Reserve  is the biggest  toxic asset.

tags: politics  business  toxic assets  tarp  the fed  neil barofsky  takebackamerica  

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