Economic Insanity Ensues

Oh boy, oh boy, oh boy...

This afternoon President Barack Obama announced that his administration would shift TARP’s $700 billion bailout fund away from big financial institutions and toward small businesses through small banks.Specifically, the Treasury Department will offer capital from TARP, at a 3% rate, to viable banks with less than $1 billion in assets. These small banks must first submit a plan explaining how the capital will allow them to increase lending to small businesses.

But remember that TARP was originally sold to the American people as a way to protect the economy from the systemic risk posed by the collapse of firms that were too big to fail. Small businesses and small banks are by definition not too big to fail.

First under the Bush administration and now under Obama, TARP has become a slush fund for pet political priorities. And as the New York Times reports, this time it is even being used to influence votes in Congress:

What is striking about the S.B.A. initiatives is not just the size of the increases but whom they appear meant to impress. The new loan limits closely track increases proposed by Olympia Snowe, the senator from Maine who is both the ranking Republican on the Senate Small Business Committee and possibly the only Republican considering voting for Democratic-led health care reform.
…
At least one observer was not surprised. “Who is the one senator they need on health care reform?” a lobbyist who has followed the issue asked, rhetorically. “What number do you think they’re going to pick?”

The Obama administration has the authority to extend TARP until next October. But even members of his own party are growing tired of the lawlessness it has created. Rep. Dan Lipinski (D-IL) has called for TARP to be ended this December, telling USA Today: “We don’t even know where the money went.”

The only way to prevent further misuse of the program is to end it.

'I told you so' just doesn't quite cover it.  But, as always with liberals, it gets worse:

Via USA Today, TARP IG Neil Barofsky has some harsh words for the way the TARP funds have been handled:

A Treasury Department watchdog is warning that a key $700 billion bailout program has damaged the government’s credibility, won’t earn taxpayers all their money back and has done little to change a culture of recklessness on Wall Street.

“The American people’s belief that the funds went into a black hole, or that there was a transfer of wealth from taxpayers to Wall Street, is one of the worst outcomes of this program, and that is the reputational damage to the government,” said Neil Barofsky, special inspector general of the Troubled Asset Relief Program (TARP), in an interview.

***

The report criticized Treasury’s implementation of the program and its lack of transparency, making 41 recommendations, 18 of which were implemented. Barofsky says it’s “extremely unlikely” that taxpayers will recover the $77 billion committed to the ailing auto industry or the $60 billion in TARP assistance to American International Group as part of a pledge of up to $180 billion in aid. An additional $50 billion to modify unaffordable home mortgages “will yield no direct return.”

So, not only is TARP simply a Congressional slush fund that has damaged government credibility (like it had much to begin with) and completely failed, but taxpayers aren't going to get a dime of it back.

But guess what the really good news is?  The same people who designed, spun, sold, and failed on TARP are now discussing a second 'stimulus':

Democratic leaders are meeting today with the same economists who advised them to push their first disastrous $787 billion plan earlier this year.

The House Leader reported:

With families across the country asking “where are the jobs,” House Democrats are meeting this morning with the same economists who pushed for the trillion-dollar ‘stimulus’ that isn’t working. Also on the agenda for Speaker Pelosi is figuring out how to spend and borrow away her party’s disastrous economic record through a “stealth stimulus.” While Democrats pursue the same shopworn ideas that are failing out-of-work families struggling to make ends meet, House Republicans have already proposed a “bipartisan jobs plan” to help small businesses, assembled a “kitchen cabinet” of economic experts, and convened a working group of lawmakers to review additional job creation proposals.

Their Keynesian economics may have failed the first time but that won’t stop them from trying it again.

What could go wrong?

There's my two cents.