"We Were Just Kidding," Treasury Sez. "Wait, You Believed It?"

Should we be relieved or mad as hell that Treasury Department suits seem to realize their public comments on the economy are baloney?

Steve Randy Waldman tells the story of a meeting with some Top Men, including Treasury Secretary Tim Geithner himself.

The meeting goes well. Waldman confirms reports that Turbo Tim in person is a hale fellow well met, very different from the schlemiel he plays on TV. One official acknowledges that lack of demand is the reason businesses can't expand, not lack of access to debt. Another official sees "two or three difficult years ahead of us yet," which seems optimistic but is somewhat sober.

The real meat, however, comes in the discussion of the Home Affordable Modification Program, wherein Treasury's good ol' boys let on that, hey, it was all just a dodge to help the banks:

Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”. Treasury officials are not cruel people. I’m sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those.

What should an intelligent person make of this? Alex Tabarrok calls Waldman's post "very good and accurate," and I'll leave out the possibility that he means "the parts that are very good are not accurate and the parts that are accurate are not very good." So here is the most charitable way I can characterize these comments: They're making a variant of the "Thanks to NASA we have Tang" argument. Or a more recent cover version: "OK, so Cash-For-Clunkers didn't do squat for the environment, but look what it did for car sales." That is, they are admitting HAMP was not about keeping people in their borrowed homes at all. Instead, it was about bailing out Treasury's bank buddies.

If I were a mortgage deadbeat, I'd be enraged. Since I'm not, I'm grateful to learn that at least these bastards know what planet they're living on.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Binky||

    Treasury officials are not cruel people. ... But they have larger concerns

    IOW, Treasury officials are cruel people.

  • ||

    I think that was the point.

    A big Thank You to Tim and the rest of the Reasonites for NOT writing for the Kansas City Milkman. (Leaving aside the fact that there probably is no such person as a KC milkman any more, except in J-school.)

  • Hugh Akston||

    I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”.

    Seriously. Fuck those guys.

  • Fist of Etiquette||

    You thought you only had to worry about inflation or deflation, but now you can add conflation to the list.

  • Binky||

    Don't forget conflagration.

  • Paul||

    stagdeconflagration

  • !||

    er...
    bankfellation

  • !||

    or to be gender inclusive

    bankillingus

  • ||

    Of course it was about bailing out the banks. But the issue is whether the banks needed to get bailed out to "save the financial system" or not.

  • Some dude||

    No that is not the question. At all.

  • Paul||

    You're right. There was no question. We know there was no need to bail out the financial system.

  • ||

    That it was about bailing out the banks shows that they are despicable. That it was not necessary to "save the financial system" shows that they are incompetent.

  • ||

    In all seriousness, what IS "the financial system"?

    Nobody set up this "system". There was nothing to "save". It was an example of spontaneous organization, and failed parts would have been replaced, spontaneously, with new ones. The government bailouts merely served to prevent the "system" from self-reorganizing in a better way -- and I suspect that, long after this recession is forgotten by most, we will pay the price for that enforced failure to self-repair.

  • megapotamus||

    Word!

  • Fist of Etiquette||

    I'm not entirely certain that, just because you make your payments, you shouldn't be enraged at least a little by this.

    Obviously it's not a revelation that mortgage bailouts really only helped the lenders, or that the T-Men designed it as such, or that they pretended otherwise to make it more palatable. The outrage - well, an outrage - is that the way it was implemented generally gave zero incentive for lenders to make any real effort to work with borrowers to keep their homes. And the taxpayer gets to pay for all of that.

  • Ron L||

    Socialized risk, privatized (somewhat) profit.
    It would be a lot easier if I didn't have to figure out which supposed 'profit making' entity was not capitalized by me. At no interest.

  • ||

    people makign payments with some extra cash left over should be enraged...we want prices to fall so that we can buy a 2nd home or take our losses on existing homes but still move up in quality...instead the values are still inflated in order to save banskters and ring every penny out of the house poor.

  • Old Mexican||

    What should an intelligent person make of this?

    That they are lying.

    What should an UNintelligent person make of this?

    That they work for Obama, so they're all right.

  • The Ghost of Willie Sutton||

    Why do banks need bailing out? That's where the money is.

  • SIV||

    Why malign Rich Uncle Pennybags? He worked his way up from renting tiny hovels on Baltic and Mediterranean to owning Hotels on Boardwalk and Park Place. It isn't like he was born on Free Parking or something. You haters need to get some initiative instead of just waiting until you pass Go and collecting your $200.

  • Bobby||

    pass Go and collecting your $200

    I don't agree with that. You know the Parker brothers took time to think this all out. I think we should respect that.

  • slayer of burritos||

    'I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”.'

    It seems like the big fight right now is not left versus right, or even individualist versus collectivist (per se), but rather individualist versus institutionalist -- that is, should institutions be judged by how they serve the needs of individuals (including collectives of individuals), or should they be ends in and of themselves?

    Every time people use the word "education" to refer to schools and teachers rather than the process of helping people acquire knowledge and skills, every time they talk about "the press" as a set of archaic businesses and their employees rather than all people that produce media for an audience, every time they talk about "business" as an existing set of large, entrenched corporations rather than everyone (labor, capitalist, management, whatever) involved in trade and commerce, they reinforce the institutionalist perspective. It leads to the ridiculous spectacle of people who support institutions being directly at odds with people who support the objectives those institutions allegedly exist to serve.

  • Bill||

    +10 Excellent post, slayer!

  • Apogee||

    Yes, +10

  • Spoonman.||

    An excellent way of thinking about things. Thanks.

  • ||

    real insights ...much better than most "real" journolists...thanx burritos

  • ||

    How many simultaneous big bank failures do you think the FDIC could handle, Tim?

    Those of us who have savings, as opposed to mortgage debt, would like to not have those savings vanish.

  • ||

    Before being burnt at the stake for heresy, I should mention that I don't support federal intervention of this sort. But it's not as sinister as you paint it. Existing banks are where ordinary people who scrimp and save and deny themselves keep the fruits of their asceticism.

  • mofo||

    Sounds more like you are making a case for the FDIC to intervene, as opposed to the fed.

  • SIV||

    They only need to come up with a MAXIMUM of 250k per depositor. Most depositors have only a checking account with jack shit in it.Banks have assets that can be liquidated. Unless there is a simultaneous nationwide run the FDIC can come up with the guaranty, even with fractional-reserve lending and toxic loans. If they returned to a 100k insured limit it would be even easier.

  • JoshINHB||

    Well,

    Worst case the Fed might have had to create 1 or 2 trillion of new dollars to cover all those depositors and we sure wouldn't want that to happen.

  • Apogee||

    Yes, better to spend that 1 or 2 trillion filling the pockets of the politically connected.

  • Inkblots||

    Sounds like an argument against government insurance of bank accounts and subsidy of risk, and for allowing consumers to accept the risks of fractional reserve banking, rather than an argument for HAMP.

  • robc||

    Exactly.

  • ||

    FDIC is essentially a government subsidy for debt, across the board.

    If a bank didn't have this "insurance", do you think I'd leave my money in there at .004% per annum or whatever we're getting now? Hell no! They'd have to pay me a serious risk premium, and they'd have to get all of that money from borrowers, plus enough to cover expenses and make a profit.

  • Apogee||

    Those of us who have savings, as opposed to mortgage debt, would like to not have those savings vanish.

    You seem quite sure that the way things have been handled hasn't actually set in motion that very scenario.

  • Rich||

    Well said.

  • Rich||

    @ slayer of burritos. FTC!

  • AlmightyJB||

    I'm not sure why anyone would believe anything these guys say. So they come out and say, well the way things happened is exactly what we planned to happen, even though it's not what we said would happen. We meant to do that. Yeah,Yeah, that's the ticket. They're morons and dicks.

  • ||

    A moron can't really be a dick, since he doesn't know any better.

    These guys are just plain dicks.

  • ||

    The more corrupt our government gets, the more of a drain on our economy it will become. We half like half the planet as an example.

  • ||

    Ve half like half der planet.

  • bags||

    That it was about bailing out the banks shows that they are despicable. That it was not necessary to "save the financial system" shows that they are incompetent.

  • ||

    Or extremely corrupt.

    Funny how Dick Cheney got no end of accusations for having worked at Halliburton, which IS a large government contractor and does get paid tax money for its services, but these guys are flowing tax money directly to their former employers, who are not government contractors and who do not perform services in return for the money.

  • fendibags||

    Those of us who have savings, as opposed to mortgage debt, would like to not have those savings vanish.

  • Inkblots||

    Then put your money in a full-reserve bank. Problem solved. Elsewise, you should accept the risks of fractional reserve banking, and not expect the Federal government to distort the market in your favor.

  • JoshINHB||

    Yeah,
    Trust the private con men not the elected ones.

  • Anonymous||

    I don't think you should trust ANY of them. It's just that the private con men are provably less likely to have thugs kick in the door of your abode and murder you.

  • ||

    Buy Gold, Canadian dollars, oil futures or foreclosed homes that are not in California.

    I am sure there are other ways to escape inflation as well.

  • scarf||

    Sounds more like you are making a case for the FDIC to intervene, as opposed to the fed.

  • ||

    Soldiers can get hung for treason.

    Perhaps a similar rule should be implemented at the Treasury.

  • leavemealone||

    Let me know when Nidal Malik Hasan gets hung.

  • ||

    That was a human-caused disaster, not treason, though.

  • ||

    it helped banks muddle through what might have been a fatal shock.

    Billy Sol Estes went to jail for artificially inflating the value of the assets on his books.

    I'm holding my breath.

  • BMB||

    Anybody have a link to the original that us mere mundanes can access?

  • Mr Whipple||

    There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right.

    "Extend and pretend", came from the suspension of Financial Accounting Standards Board's (FASB) Rule (157), mark-to-market. And deferments on (166, and 167), which are new rules designed to move the massive off-balance-sheet transactions onto the books.

    The term "extend and pretend" refers to legalized accounting fraud, not mortgage backed asset buyouts. "Marked-to-myth", allows banks to "pretend" that their toxic assets are worth more, which, in turn, "extends" their "solvency". Until such a time that the banks can afford to write down the losses, or the Fed takes them off their hands, at 100 cents on the dollar, of course.

    Geitner, Bernanke and Summers seem to have been trying to duplicate what Volcker did so successfully in 1982. This period since March 15, 2009, when the suspension of the rule [157] went into effect, has been called “extend and pretend”.

    All of the markets have risen from their March ’09 lows because of what I would term musical chair trading—everyone makes money so long as the music doesn’t stop. The “music” of this metaphor is a combination of Uncle Ben’s easy money, relative calm in the world, and good ol’ “extend and pretend”, courtesy of FASB.

    http://www.nakedcapitalism.com.....etend.html

  • Mr Whipple||

    Here's the money quote from the link I provided, somewhere down in the comments:

    Rick says:
    April 4, 2010 at 7:16 am

    This is excerpt for article entitle; “Timothy Geithner is a Sniveling Scamster”, by Mike Whitney.

    “being that Bernanke has already shot his wad, and politically, it will be impossible to pass another TARP.”

    The backdoor:
    Subprime-mortgage securities are rising at an accelerating pace as the U.S. begins to encourage reductions to homeowners’ balances, which may lead to fewer foreclosures and a quicker end to the housing slump….Senior-ranked bonds tied to borrowers with poor credit will mostly benefit after the Treasury Department said for the first time it would seek to cut the size of mortgages, reducing the likelihood that loan modifications will fail, according to JPMorgan Chase & Co., Morgan Stanley and Barclays Plc. (Bloomberg)

    What does it mean? It means that Obama’s mortgage modification extravaganza has touched-off a gold rush in toxic paper. Subprime securitizations, which had been worth next to nothing, are now the hottest trade on Wall Street. It’s a subprime bonanza! The investment sharpies are scarfing up all the crummy MBS they can get their hands on, because they know they can trade it in for Triple A FHA-backed loans when the program get’s going. It’s another swindle cooked up by Treasury Secretary Timothy Geithner to keep the brokerage clan in the clover. Here’s how a Wall Street veteran explained it to me:

    “It looks like the investors in securitizations will be swapping underwater real estate for govt-insured paper… I think the scam here is just to provide some cover so the hedge funds and other high net worth individuals can trade their low grade paper for Triple AAA mortgages insured by the FHA at the taxpayer expense.”

    That’s it, in a nutshell. The faux-foreclosure prevention program has nothing to do with helping homeowners. That’s just diversionary gibberish to confuse the public. The real objective is to create a government landfill (aka–FHA) where the banks and other financial institutions can dump their toxic MBS-sludge and walk away with gov-backed loans. Get a load of this:
    (Bloomberg) — The Federal Reserve’s completion this week of its program to buy $1.25 trillion in mortgage bonds probably won’t mean significantly higher U.S. home loan rates as investors return to the market, replacing the Fed…

    “What we are seeing is an effective handoff occurring between the Fed and industry buyers such as banks and pension funds,” said Christopher Sebald, chief investment officer for Advantus Capital Management in St. Paul, Minnesota..”
  • ||

    Gee, to think that my husband and I heard about HAMP and tried to apply, spending 9 extra months in an unlivable house paying the mortgage which we could almost afford while we continued repairs (electrical, plumbing, heating, energy improvements - house was built in the 1890s and electrical had a tag from 1928) using Home Depot credit, our PLC and a credit card, finally selling it at a price - after the bank mysteriously called to tell us, no reason given, to reapply (we got approved 1 day after signing a P&S) - which covered the mortgage and the debts we had run up at Home Depot and the credit card (but not the PLC - we're still paying that 8 months later). So glad we were able to help the bank survive at the cost of our own survival . . . we're royally screwed, but we're also lucky - we found an apartment and, so far, despite being underemployed, we manage to pay rent but not much else. Wish we had the cash we still had when we heard about HAMP in March, 2009.

  • db||

    Wow. That's a seriously accomplished run-on sentence. You managed three parentheticals before the period caught up with you!

    Just a question: why did you buy an "unlivable" house on a mortgage you couldn't afford? Why did you then take out even more debt to improve the house? It sounds like you thought prices could only go up. You might want to go back a few steps in your decision making process if you want to find the real reason you're in this situation.

  • db||

    Please let me note that I do sympathize that you seem to have been an example of HAMP being made for the banks, not the borrowers, and that i think that sucks.

  • ||

    If you had listened to the conspiracy nuts you'd have already known this was a scam to give banksters more assets at the expense of the poor and middle class...maybe next time you won't get your political analysis from the dummy box.

    You know your taxes are going to pay interest on the money that you GAVE to the banksters through the bailout?

    only way to get even is for you defaulters to do it the right way.
    You should have stiffed the banks...sold the copper...sold the granite, sold the fridge, sold the water heater,washer,dryer, stay in rent free for a year or two before they force you out....then leave a upper decker on the way out and put the keys in the garbage disposal and leave it on.

  • ||

    Hell, you could probably have sold the disposal for a few bucks, and the wiring, too. Just drop the keys down the open hole where the toilet was, before you sold it. :-D

  • ||

    Oh, and electrical panels are worth a few bucks, too, especially south of the border. Wiring, too. Receptacles. Everything.

    I knew a guy who did fix-up jobs near the Mexican border, and all that stuff really did get sold. Whole walls ripped out to get a copper pipe and some wiring, entire kitchens demolished for anything resellable.

  • Mr Whipple||

    Copper pipe? Who uses copper pipe? They don't even use PVC or CPVC anymore. There's some new shit that looks like a hose. Red, for hot, and blue, for cold. I forget what it's called. It all runs from a distribution block, like an electrical panel. Every faucet has its own "circuit".

  • Mr Whipple||

    It's called aqua PEX. Here it is.

    http://activerain.com/image_st.....421057.jpg

  • ||

    “Alex Tabarrok (who fascinates me as a writer, but spoke far too little at the meeting) pointed out that Treasury had done a good job so far at avoiding conflict over trade and resisting pressure to impose foolish barriers. He is right about that,”

    this is garbage…with the economy as bad as it is they should be looking to have actually free trade..not just not fucking things up! What about free trade with Cuba..what about new sanctions on Iran?

    The ruling class has no admiration for free trade in principle…they just use the words to promote certain policies when it benefits the oligarchy and hinders competition with the oligarchy.

    It sounds like Alex was searching for ways to kiss ass. Good job tool.

  • Fatty Bolger||

    When liars are suddenly being "refreshingly candid," it means they're pushing a story that puts them in a slightly bad light to cover up something that would make them look even more incompetent.

    I think that's what is happening here. If mods were so great for the banks, then why did the most resistance to them come from the banks in the worst shape? The banks knew that these mods would fail, and that's why they preferred to get them off the books rather than prolong the pain. They also know that a good number of borrowers will miraculously come up with the money somehow, once they know they are going into foreclosure and there is no other way out.

    Look at wegetout's story above. She, and the bank, would have been better off if there was no HAMP (or as borrowers often call it, "Obama mod") program at all.

    Banks are perfectly capable of offering their own mods if they think a mod will get a non-performing loan back on track - and they do.

  • Geotpf||

    How so? She simply bought a house she couldn't afford. HAMP didn't cause her to do that-it merely provides a potential out from her stupidity. If HAMP didn't exist, she still would have bought a house she couldn't afford.

  • ||

    "they're pushing a story that puts them in a slightly bad light to cover up something that would make them look even more incompetent"

    It's also possible that they want to make sure they look like they knew what they were doing, even if it was corrupt, instead of looking like idiots.

    Obama's election proved that Americans expect corruption in DC (who didn't know they were voting for a dirty Chicago-machine pol?), but they don't want someone who seems completely incompetent (not Obama's precipitous fall in approval ratings since he started looking like more of an out-of-touch moron, than simply a corrupt politician).

  • ||

    Meaning the Treasury gang, not the people who took out mortgages.

  • ||

    Should we be relieved or mad as hell that Treasury Department suits seem to realize their public comments on the economy are baloney?

    Mad as hell?

    I'd say it's way past pitchfork time.

  • megapotamus||

    What is really disgusting and enraging is the admission that these doofs knew all along that they were selling harmful policies with trumped-up arguments. From Geithner on down (we will exclude for now, Obama as he may well NOT have known better for ideological reasons) they KNEW!

  • ||

    (we will exclude for now, Obama as he may well NOT have known better for ideological reasons)

    So much for Obie being "smart"...

  • ||

    The market needed to cleanse itself. It was never given the opportunity. We'll all be living with the financial and economic peritonitis for years, if not decades, to come.

    'Berg

  • ||

    Follow along with me, please, kids:

    Anytime a contracting party enters into a contract for any reason other than what a reasonable counterparty would expect, that other reason becomes material information necessary to the counterparty in order for that counterparty to determine if the contract is still in its best interests. Failure of the first contracting party to inform the counterparty of this material information is contract fraud. So at a minimum, we have banks routinely AND AS A MATTER OF POLICY committing contract fraud. (Federal contract fraud, in fact, because everything to do with banks is federal.)

    But, we also have a Treasury that is not only aware of the fraud while it is happening, but also designing the fraud itself. So additionally, we have a Treasury with both accessory to AND conspiracy to commit bank fraud.

    Now, assuming that Treasury does not design such high-profile programs in isolation, but rather must pass these through the White House for review and approval, where does that lead us?

    Just a thought.

  • Byron||

    I call BS. The *reason* a party enters into a contract is material information owed to the counterparty? NFW.

  • ||

    TO THE WEAK-KNEED REPUBLICANS AND DEMOCRAT----Wake up america!!!! This goverment is the most corrupt we have had in years. The good old boy network is very much in charge.Mr. obama and pelosi are the puppet masters.How many of their good friends benefited by the agreement " what a farce. All of the u.sSenators voted for this. I am ashamed to say I voted for the these corupted self serving politicians.With good reason they picked an out of towner to be president.All u.s departments need an overhaul. We need to rid ourselves of the puppet masters and the dept heads that bow down to obama and pelosi.I am sick of the lip service I have been getting from these dummies over violations, their friends are getting away with.in the goverment . Barack Hussein Obama , threatens friends and bows TO Mmslim.
    INPEACH OBAMA ,GOD OPEN YOUR EYES.///For us there are only two possiblities: either we remain american or we come under the thumb of the communist Mmslim Barack Hussein OBAMA. This latter must not occur.THE COMMANDER.REPOST THIS

  • lilly zhang||

    http://www.burberryscarveshop.com/
    here are lots of nice quality burberry scarves at a discount price for you.

  • burberry scarf||

    we are specialize in lots o nice burberry scarves at a good discount. great welcome everyone order from us.

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement