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That’s essentially the position of Yves Smith at the blog Naked Capitalism.  You’ve gotta love the cats at this blog, who routinely and with great vigor expose the ridiculous logic, misdirection and wrongheaded strategic ideas that has been the Obama administrations unfettered catering to the banking industry.

Yves makes the case:

“While I cannot fathom the logic, Team Obama clearly decided to throw in its hat with the industry from the beginning, supporting a whole raft of tricks to keep banks from recognizing losses (heavens, might expose that some were bankrupt and require that incumbents be given the heave ho!). It also assisted in the “talk up the bank stocks” effort, since goosing prices would allow some banks to sell shares and save the new Administration the unpleasant task of figuring out how to resolve and recapitalize the sickest bank. It never seemed to occur to them that the best time for a President to take unpopular but productive action is at the start of his tenure. Nor did they anticipate that the public was not as dumb and inattentive as they assumed, and has taken notice of how the Administration has hitched its wagon to that of the plutocrats.”

Yves’s makes the point that keeps going unmentioned in much of the mainstream media coverage of banks who repaid TARP funds and the reports of improved performance by the industry.

“The banks got massive subsidies during and after the crisis; they continue now with the Fed’s super low rates and continued intervention in the mortgage markets (theoretically ending in March, but most informed observers expect the central bank to blink).”

Yves’ goes on to point out that now the Obama administration is caught between a crock and a hard farce, being completely sold out to the industry with a body public suffering mightily while they watched the architects of the financial crisis grow fat by socializing the losses the administration is desperately working to keep them from recognizing on their books:

 “The sketchy announcement du jour, that Obama will announce a $120 billion TARP fee this week (hhm, conveniently timed to distract attention from the start of the hearings into the crisis and Wall Street bonus announcements) illustrates the bizarre position the Administration is in. Alert readers may recall that Obama was touting the performance of the TARP at his Lehman anniversary speech in September. It repeated that palaver in December. As we noted then:

Both Obama and the Treasury Department keep talking up the TARP as if it is a money maker for taxpayers, when nothing could be further from the truth. Obama tried this stunt in his anniversary of Lehman speech, and the Treasury continues with the theme, of implying that results for the firms that paid back are representative of what the final results would be. If this logic were generally true, that would mean subprime bonds were a good investment too. After all, most borrowers did make good on their mortgages. A late September Moodys mortgage survey that a reader sent me estimated that total losses on subprime RMBS will be about 26%, which means that 74% were money good. The problem with the Treasury/Obama three card monte is that the strongest TARP are the ones that paid off first. Things can only go downhill from here. Do you expect AIG to repay the TARP in full? Or the auto companies?”

Yves’s succinctly sums up “the PR corner that Team Obama has painted itself in. It isn’t willing to do the UK thing and decry banker bonuses as irresponsible and unwarranted. It had Kenneth Feinberg, the pay czar, take a few scalps, but it was clear the Adminsitration had no intention of challenging the financial industry’s right to loot and pillage. It isn’t even willing to say the profits are due almost entirely to subsidies, hence a windfall profits tax (presumably one focused on capital markets operations, that’s where the real juice is) is in order. Heavens, that might lead chump investors to question bank valuations and sell stocks! Horrors, can’t have prices that reflect fundamentals when the Administration has been pointing to the improvement in the financial markets as proof its policies are working.So the finesse is now to admit, in a reversal of its recent posturing, that yes Virginia, the TARP is losing money
 
The Obama administration is selling fake economic recovery fumes as though they were the aroma of an energetically healing economy, talking up improved bank performance in some quarters.  Really? The Fed is selling banks money at effectively zero percent interest, which they are relending at 5% and up.  That’s a little bit of arbitrage my 7 year old Noah could do. On top of that, the executive is using the Treasury, the Fed, the tax code and every tool at their disposal to prevent banks from recognizing losses and help them recapitalize (capital they then hoard or do acquisitions with, not lend).  When the government is actually forcing you to take money (TARP) and finding any way it can to subsidize your industry, its hard not to make a few bucks.  But Americans aren’t stupid and the Obama administration is at some point going to run out of room to play both sides of the economic blame game.

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