Image: Joe Sestak campaigning in Philadelphia
Matt Rourke  /  AP
Pennsylvania Democratic Senate candidate Rep. Joe Sestak appeals to a voter during a campaign stop in the Italian Market in Philadelphia on Tuesday.
By Tom Curry National affairs writer
msnbc.com
updated 10/27/2010 1:27:25 PM ET 2010-10-27T17:27:25

A very unhappy birthday to you, Wall Street bailout!

On the second anniversary of Congress’ vote to create the rescue plan for financial firms, even those who voted for it treat it like a toddler with the “terrible twos.”

Democrat Rep. Joe Sestak, who is running for the Senate in Pennsylvania, is airing an ad comparing his 2008 vote for the bailout to cleaning up the poop from his dog, Belle.

"It made me sick to bail out the banks, but I had to clean up the mess left by these guys. They let Wall Street run wild," Sestak says in the ad, gesturing to a photo of his Republican opponent Pat Toomey and former President George W. Bush.

In his ads, Toomey says he worked on Wall Street 20 years ago, before becoming a restaurateur in Allentown, Pa. “Way back then, I learned that Wall Street is the last place that should ever get a taxpayer bailout,” he tells viewers.

Candidates often loosely use the term “bailout” to cover three different programs: the Troubled Asset Relief Program; the $14 billion auto industry loan program; and the federal government’s ownership of home mortgage guarantors Fannie Mae and Freddie Mac.

During the 2008 financial crisis, the federal government took over Fannie Mae and Freddie Mac, which guarantee more than half of the residential mortgages in the United States. It has subsidized them with $148 billion since 2008.

Weeks later — and only a few weeks before the 2008 election — Congress voted to authorize TARP. Republican presidential nominee John McCain and GOP Senate Leader Mitch McConnell voted for it, as did then-Sen. Barack Obama and most Democrats in Congress.

DeMint's pre-election verdict
Five days before the 2008 election, Republican Sen. Jim DeMint declared that McCain "lost the election in how he dealt with" the TARP vote. (DeMint had supported McCain's rival Mitt Romney for the GOP presidential nomination.)

DeMint said the bailout might make the nation's problems worse. “As you can tell, I'm a little bit angry," he said, in comments reported by the Charleston Post and Courier.

DeMint wasn’t the only one who was angry.

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Republicans have learned the lesson of 2008 and are now using the bailout to batter Democrats who supported it.

In Virginia’s 9th Congressional District, Republican ads target 14-term Democrat Rep. Rick Boucher’s “yes” vote on the bailout. With a photo of Obama and Boucher on the screen, the ad says, “Boucher was loyal to him on the Wall Street bailout … Rick Boucher’s loyalty to Obama has cost us too much.”

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Boucher ran unopposed in 2008, but faces a strong challenge from Republican Morgan Griffith.

The GOP is running similar ads across the nation, from South Carolina — where it’s slamming Rep. John Spratt — to North Dakota, where Republicans use TARP to link Rep. Earl Pomeroy to House Speaker Nancy Pelosi.

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Republican casualties from TARP vote
The TARP vote has already caused intraparty casualties on the Republican side, with Alaska Sen. Lisa Murkowski, Texas Sen. Kay Bailey Hutchison, Utah Sen. Robert Bennett, and South Carolina Reps. Bob Inglis and Gresham Barrett all losing primary contests this year partly due to their votes for TARP.

TARP isn’t exclusively a Republican issue. As some Democrats did in while running against Republican candidates (like McConnell) in 2008, they're again using the TARP vote as a weapon.

Case in point: the Missouri Senate race where Democrat Robin Carnahan has blasted Rep. Roy Blunt for his efforts to pass the bill when he served as House GOP whip.

But did Blunt, Sestak, and the others do the right thing in 2008? Did TARP do what it was intended to do?

A report released Monday by the Special Inspector General for TARP, Neil Barofsky, gave the program a mixed report card.

Barofsky’s report made the following points:

  • TARP, combined with other actions by the Federal Reserve and the Treasury, helped avert a financial collapse.
  • TARP has helped financial firms achieve “a swift and striking turnaround” and “a return to profitability,” but “the biggest banks are bigger than ever, fueled by government support and taxpayer-assisted mergers and acquisitions.”
  • The program hasn’t increased bank lending. “Indeed, even now, overall lending continues to contract, despite the hundreds of billions of TARP dollars provided to banks with the express purpose to increase lending.”

$80 billion still available
His report also reminds taxpayers that although the Treasury’s authority to initiate new TARP investments has ended, $178 billion in funds are still being lent out or invested, and more than $80 billion is still available to spend.

Barofsky is harshly critical of the Treasury’s handling of its assets of AIG, the former insurance industry giant.

A recent Treasury report on AIG “fails to meet basic transparency standards” by not telling taxpayers that the Treasury has changed its accounting methods for its AIG investment, Barofsky says.

“This conduct has left Treasury vulnerable to charges that it has manipulated its methodology” to make the AIG losses seem smaller than they are. And Barofsky’s report found that under a recapitalization plan agreed to by the Obama administration, taxpayers will end up owning 92 percent of AIG common stock, up from the 79.8 percent they owned in the first days of the AIG bailout.

TARP 'saved the financial system'
TARP does have its defenders, even a few Republican ones, although their voices aren't likely to be heard in the final days of the 2010 campaign.

Sen. Judd Gregg, R-N.H., who isn't running for re-election this year, said on MSNBC’s Hardball in July, “The simple fact is that TARP did what it was supposed to do. It basically saved the financial system on Main Street — on Main Street. And not only did it save it, but it did it in a way that the American taxpayer actually made money off the money that we put into the system to try to stabilize it.”

The non-partisan Congressional Budget Office said that financial firms are paying money back into the Treasury.

In fiscal year 2010, which ended on Sept. 30, TARP repayments amounted to $108 billion. That compares to an outflow of $154 billion in TARP payments from the Treasury in fiscal year 2009.

The Treasury estimates that TARP will end up costing taxpayers about $50 billion, way below the $700 billion ceiling Congress put on the bill when it created TARP.

But an Oct. 4 report from the Government Accountability Office sounded a warning.

As of the end of July, the GAO said, an increasing number of firms receiving bailout funds “have missed their scheduled dividend or interest payments, requested to have their investments restructured by Treasury, or appeared on FDIC’s list of problem banks.”

Assessing TARP’s Capital Purchase Program, the GAO said the number of institutions missing the payments due on their CPP investments has jumped from eight in early 2009 to 123 in August 2010.

The government also remains on the hook for the separate mortgage guarantee "bailout."

Barofsky said in a report in July that the federal government has “an implied commitment” to stand behind Fannie Mae and Freddie Mac debt obligations, which amounted to $6 trillion — an amount equal to 43 percent of U.S. national income — at the end of 2009.

Simon Johnson, the former chief economist for the International Monetary Fund, told the Senate Budget Committee early this year that international bankers would say to Congress, “Unless you show us a plan for privatizing these entities, which you talk about but we haven't seen the plan, we have to start thinking about these as liabilities of the U.S. government.”

© 2013 msnbc.com Reprints

Video: Barofsky examines the bailout

  1. Closed captioning of: Barofsky examines the bailout

    >>> welcome back. whether it's the banking system or the pensions, the accounting shenanigans from our bought off politicians allow them to continue free spending benefited, of course, in the fed money printing , and then this money gets recycled into the political system to cover these things up, which then, of course, leads us to wonder where are the investigations which leads us, of course, to the treasury. a news flash for you, you might not be able to trust them when it comes to their accounting, too. that confirmation of what we really already knew coming from our favorite t.a.r.p. watch dog neil barofsky. i'm not saying watch their accounting, neil is. neil says the government's estimate of the losses from the aig rescue specifically which is one of the side bars here went to pay off all those bets on the pensions may be too optimistic. the treasury, he says, is using funny math. the treasury projecting a loss of $5 billion instead of $4 billion. just so happens the treasury changed the way that it accounts for the numbers. it's a great trick. they did it with the banks, doing it with the pensions. just keep printing, mr. ben. in case you forgot, the people that are making these changes are the ones you pay with your tax dollars to work for you to protect you from people who would want to do this to you. even the $45 billion number a tiny sliver of the $13.8 trillion in tax dollars at risk. don't look for your friends at the treasury to publicize that number. neil bar revolof neil bar revolosky joins us now. he says treasury must be more transparent. accounting shenanigans from the banks to the pension funds to the treasury department . seems to be a theme of the day. how bad is it at treasury?

    >> i think you described it pretty accurately. it's a problem ever disclosure. they changed their methodology and how they account for their potential losses from aig . they failed to say and disclose at the same time, one, that this was a change in methodology from what we've been using since the bailouts inception and, second, i think equally disturbing that the number they pushed out on october 5 with part of this t.a.r.p. retrospective and this publicity campaign they did was going to be different from the number they were going to be using in just a couple weeks of their audited financial statement because their auditors are going to require them to use the older methodology.

    >> what will it take for the american people to get a real investigation?

    >> well, you know, it really depends on what to investigate.

    >> i'll give you an example. all the securities bought at fannie and freddie, all the securities bought at the federal reserve , all of the securities that may be laden with fraud. bill black on our show yesterday asserting fraud is from the top to the bottom of the housing market was used to pay out all the banksters and lots of other things, political donations , give away houses, you pick it. it's been a couple years and we don't have much of anything. we don't even know really what's in these funds.

    >> i'm sorry, dylan, i'm hear being indianapolis and i didn't hear your question in my earpiece. but i will say this. we have more than 130 ongoing criminal investigations right now that touch on some of these very issues. you know, we have had criminal charges from -- against eight or nine ceos or cco equivalents of different companies. when it comes to t.a.r.p., we're on the beat.

    >> so here is something, the treasury said this. the treasury responds to your report and others. they say i think the accusation that we failed to be transparent is unfair. so i took that and i looked at my old friend mark pitman who is an old colleague of moon ine at block bergs who is running the freedom of information request. mark specifically was trying to get the identification of the tracking numbers for citi owned securities owned by the u.s. taxpayer. we don't know how many of them are fraud, how many of them are nonsense. 20 months after mark's response -- mark's request, they offer up 560 e-mails, almost all of which were redacted. i mean, we've got some examples. this is how the u.s. government that claims to be a transparent government responds to a freedom of information request after giving away trillions of dollars. this is one -- do we have the e-mails? me talking about it is less powerful. you're kidding me? we don't have the graphic? i love we don't have the graphic. i less --

    >> it must be in indianapolis .

    >> it must be in indianapolis . nothing like trying to do a segment where you show the lack of transparency where the graphics people don't actually have the graphic. thank you for that. michael, this is terrific information and i know you've worked very hard pulling this together. thank you. was the only portion of one i mail that was there of the 104 pages that were issued, 73 of the 104 pages were blacked out. how is that transparent 20 months later, three-quarters of it's blacked out and the part not blacked out says it's great information here, thank you and the rest of the e-mail is blacked out?

    >> dylan, i don't understand sometimes the defenses of transparency . on this particular issue with aig , this is a simple fix. when we first discovered this issue, i wrote a letter to the secretary geithner saying this is a pretty simple fix. you need to put this number out and correct it and say, look, this is a result of a change in methodology and here is our methodology and here is the number and this is what happened. it's a very simple fix. we're not asking them to do anything extraordinary. it was just a simple acknowledgment that the american people would like to have all of the information, including this change, and they didn't do it, and i don't really -- can't give an explanation ever how that's transparency .

    >> i'm going to ask you one more question on transparency for your point of view. this comes from the president. january 21st , 2009 . really right after he became the president of the united states . lots of rhetoric from him coming in about transparency . it was very magical, probably helped him get elected although it doesn't seem to be happening. he said the government should not keep information confidential merely because public officials might be embarrassed by the disclosure because errors and failures might be revealed, or because of speculative or abstract fears. so how are we to interpret the president's comments, not that this is your role more than anybody else's to have to deal with it?

    >> well, the president's comments, those are our mantra. that's what we're going to continue to do. we'll continue to demand this transparency and when it's failing, when there's acts of omission and commission, we're going to be loud and scream loud and come on your show and try to bring attention to it. so hopefully it stops and we do get the transparency we were promised.

    >> well, we couldn't be more appreciative of your efforts, neil , each and every day. we thank you for your efforts tremendously. neil barofsky, special inspector general for t.a.r.p.

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