Trickle Down Bailouts

Not surprisingly, yesterday's report from the Government Accountability Office (GAO) was highly critical of the use of funds from the Troubled Asset Relief Program (TARP).

Apart from the fact that the $350 billion initial fund was not used as intended (to buy mortgages and mortgage-related assets), it's now obvious to everyone (including the GAO) that the TARP has been a total failure.

Treasury Secretary Hank Paulson apparently decided to take advantage of the loosely worded legislation that enabled the TARP (Emergency Economic Stabilization Act of 2008) to use the money in whatever way he chose; which means passing it out to his buddies on Wall Street.

No dragging the CEO's before Congress to be interrogated. No requirement that the CEO's agree to work for no compensation. No questions about whether they flew or drove to the hearings. No insistence that they provide elaborate business plans to show how they will use the funds.

So after an initial $25 billion bailout, Citigroup made a phone call to get another $20 billion a couple of weeks ago, along with FDIC (not TARP) protection on $306 billion of "problem loans." Insurance giant AIG picked up $85 billion, followed by another $37.8 billion, and then additional funds bringing the total up to $152.5 billion. Yesterday, AIG disclosed that they face another $10 billion in losses from speculative trades that "haven't been explicitly detailed before," according the Wall Street Journal.

None of this has done anything to address underlying causes, such as falling home values and mortgage defaults. It's classic "trickle down" economics; pour enough money into financial institutions and eventually some of it will trickle down to the homeowner facing foreclosure. Except it hasn't worked, prompting the White House to ask banks last week to stop hoarding cash.

The failure of the TARP led to additional actions that bring the total direct and indirect financial obligations the government has assumed to well over $7.8 trillion.

Congress has learned its lesson, and is determined to make an example of someone. So they're putting automakers through the wringer. At this point, it looks like the proposed bailout of the automakers will drag on for at least a couple more days and, at best, the automakers may receive loans totaling $15 billion.

If Congress doesn't extend the loans, the result will be lost jobs (as high as 6 million by some estimates). This, of course, will lead to more mortgage foreclosures and trillions more in bank bailouts. It doesn't make sense, except in the fantasy world of "trickle down" economics.

Maybe the automakers should ask Citigroup if they can "trickle down" 5 percent or so of the bailout they received to keep 6 million workers employed.