Today, President Barack Obama met with the CEOs of the nation’s largest banks, in order to discuss his plans for economic recovery and revamping financial regulation. The CEOs emerged from the meeting affirming that they are committed to doing what’s right for the country. “We’re all in this together,” John Stumpf, CEO of Wells Fargo, said. “We’re trying to do the right thing for America.”
This theme was echoed by JP Morgan Chase CEO Jamie Dimon during an interview with CNBC. However, Dimon stated that the way in which the banks are “doing the right thing for the country” is by using just “some” TARP money appropriately:
Everyone in the room came from the standpoint they’re going to do what’s right for the United States of America and not their institutions. And that some of the TARP money is being used to finance businesses and to do what we were asked to do with it. [...] But I think most people were common that the point of the TARP was to use it for the country. There was a lot of criticism about it, but that shouldn’t stop you from doing the right thing for the country.
If only “some” of the money is being used “doing what’s right for the country,” then where is the rest going? As Yves Smith at Naked Capitalism picked up on, it may be going to game Treasury Secretary Timothy Geithner’s public-private investment fund:
As Treasury Secretary Tim Geithner orchestrated a plan to help the nation’s largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market…While some observers concur that the buying helps revive a frozen market, others argue the banks are gambling away taxpayer funds instead of lending.
Citi and BofA have taken heavy losses on toxic assets, and will likely take billions of dollars more. They were given TARP money to offset these losses and to lend, but instead they are using it to speculate on even more toxic assets. They seem to be hoping that Geithner’s plan will drive the assets’ values up. But whatever the rationale, this is essentially doubling-down on toxic assets with taxpayer money. So much for doing what’s right for the country.