The Greater Abomination: Washington's Lies About TARP's "Success" Are Worse Than The Original Bailouts, Part I

Tyler Durden's picture

Submitted by David Stockman via Contra Corner blog,

The mainstream economics narrative is so far down the monetary rabbit hole that the blinding clarity of the chart below has no chance whatsoever of seeing the light of day. That’s because it dramatizes the real truth regarding all the Fed gibberish about “accommodation” and “stimulus”. Namely, that what lies beneath its “extraordinary measures”, such as ZIRP, QE, wealth effects and the rest of the litany, is a central banking regime that systematically destroy savers.  Period.

Just take the simple case of a worker who joined the labor force in 1969 at $100 per week or $5,200 annually, and worked at the average non-supervisory weekly wage posted by the BLS every year through 2009. By that point he or she would have attained an ending wage of $600 per week or $31k annually, and a 40-year average annual income of about $20k in nominal terms. With a normal load of payroll and state and local withholding, the latter would have left about $15,000 per year on an after-tax basis.

Upon retirement this BLS tracking worker could have possibly accumulated $100,000 in a savings nest egg—-but only if he or she had been completely atypical and set aside an average of 17% of after-tax income each and every year. Needless to say, that would have precluded nearly all everyday “luxuries” such as  a regular new car, an occasional trip to Disneyland, a bass boat for weekend fishing and most other like and similar modest indulgences. Instead, deep thrift would have been the omnipresent watchword of this household.

Next, suppose that after 40 years of skimping and penny pinching this now retired household wished to keep it’s funds in safe and liquid six month CDs. Well, as shown below, according to the writ of Bernanke and Yellen, the interest earned last year on $100,0000 would have amounted to the munificent sum of $1.07 per day—–before bank fees, inflation and taxes. Yes, after 40 years of thrift, our retiree could afford—-from the entire return on his nest egg—– a Starbucks cappuccino about once every three days!

Jim Grants aptly described the savers lot thusly:

“Savers are figuratively on their hands and knees and rooting around in bushes and between sofa seats for loose change on which to sustain themselves.”

There is a reason they call ZIRP financial “repression”—-even though “oppression” might be a more suitable term. And no, despite the monetary bureau’s whining about too little inflation, the fact is that even at the systematically understated CPI, this worker’s life time nest egg would already be down to $92,000 in real purchasing power after only four years on the shuffleboard courts.

The point here is partly to lament the stupendous injustice of ZIRP, and to highlight that it is truly something new and terrible under the sun. Had our theoretical worker retired in 1996, for example, his interest earnings over the next four year would have been $5,000 per year on the same life time nest egg invested in six month CDs.

Now despite the monetary politburo’s noisy gumming about  the mythical “deflation” threat, the gaping difference between earning $5,000 and $400 per year on the same principal amount is a matter purely of central bank policy. It has nothing whatsoever to do with market economics or any change in the underlying inflation trend. In fact, the average CPI gain during the four years after 1996 was 2.1%—-or only a hairline different than the 1.9% per year that has prevailed since 2009.

And that gets us to the galling part. The policy apparatus of the state has subjected savers to brutal punishment for one reason alone. Namely, to enable the insolvent big banks of America to dig their way out of the deep hole they were in at the time of the financial crisis. By scalping false profits from the Fed’s regime of financial repression, they have, in fact, been able to return accounting profits to pre-crisis levels and beyond.

And here’s why.  Thanks to the Fed, banks’ “cost of production”—–that is, the funding cost of earning assets—–has been practically eliminated.

Click on graph area to view data points table

Stated differently, ZIRP has enabled banks to carry $10 trillion of deposits at negative real interest rates. During the 72 month since ZIRP was officially embraced in December 2008, the CPI has risen by 12% (1.9% per annum). That compares to an average return on six months CDs over the same period of 0.4%. Call that a negative 1.5% real rate on the banks cost of funds.


This has been called the Fed’s “No Banker Left Behind” program and for good reason. Financial repression extracts at least $700 billion annually from bank depositors. At current tax and inflation rates, an honest free market would require at least a 4% deposit rate or 350 bps more than the average bank cost of funding shown above.

And that’s just for starters. As will be shown in Part II, banks—especially the giant Wall Street banks and financial supermarkets—-have profited in many other ways from financial repression. These include hundreds of billions of mortgage banking profits that were skimmed from the mortgage “refi” boom of  2010-2013. When the Fed used QE to scoop up more than $1 trillion of GSE securitized mortgages, and thereby drove home mortgage rates to as low as 3.25% in 2012, banks led by Wells Fargo booked massive gains through the magic of “gain-on-sale” accounting.

The banks’ financial repression windfall also included the underwriting profits from the huge boom in investment grade and junk bond issuance. This multi-trillion issuance frenzy over the last six years had very little to do with market economics or real asset investment; these new funds went overwhelmingly into stock buybacks, LBO’s, cash M&A deals and other forms of financial engineering.

And, it goes without saying, that the Fed’s massive buying of US treasury debt provided yet another form of windfall. Banks loaded up with government securities during the past five years, knowing that the Fed had put a floor under bond prices, permitting them to scalp virtually risk free returns owing to their 0.4% funding costs.

So now comes the Big Lie. On the occasion of selling its remaining shares in Ally Financial, the WSJ faithfully peddled an unconscionable claim by the Obama ministry of untruth:

The Treasury Department said the 2008 Troubled Asset Relief Program has netted a small profit, returning $441.7 billion on the $426.4 billion invested in firms including Citigroup Inc., Bank of America Corp. , General Motors Co. , Chrysler and American International Group , Inc.

Really? The “small profit”, along with most of the so-called “recovery” of Uncle Sam’s $426 billion initial investment, was ground out of the backs of America’s savers and depositors; or it was scalped from the massive financial bubbles the Fed has generated in the Wall Street casino.

In short, under an honest monetary regime of market clearing interest rates, bank balance sheets would be far smaller. Likewise, deposit costs would be far higher, and opportunities to scalp profits from the global scramble for yield far less abundant. Part II will provide chapter and verse.

But the heart of the matter is this. The Fed and other central banks of the world have created trillions of fiat credit that is drastically mis-priced and would not even exist in a free market based on honest savings from current production and legitimate requirements for capital investment. Accordingly, the entire balance sheet and financial result of the commercial banking system is a bloated artifact of rampant central bank money printing and systemic financial repression.

TARP wasn’t “repaid” with a profit. It was simply perpetuated and  morphed into a new form of destructive state subvention and malinvestment.

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junction's picture

David Stockman is getting real annoying.  Now, excuse me while I look up the word "subvention."

Ying-Yang's picture


means when something new is made for a submarine.

/s (for the dictionary weenies)

tictawk's picture

If that's the only quibble you have from everything he wrote, you are making a mountain out of a molehill.

maskone909's picture

when you drop money from a helicopter andthink the people that touch it first wont skim most, if not all of it, before they graciously turn it over to the public...

what the hell were they thinking.

exi1ed0ne's picture

They were thinking about the future. . . theirs.  Nobody stays at the Fed or Treasury forever.

TheReplacement's picture

After seeing all the evidence of systemic graft if you are still asking why, all we can say is, what are you thinking?

Cognitive Dissonance's picture

Dear David. Isn't it obvious by now that average Jane and Joe aren't interested in knowing about the lies?

MisterX's picture

Americans are not brave enough to actually be free

Miffed Microbiologist's picture

Well, let's just hope when they are huddled under a freeway ramp next to the communal burning barrel, a spark of curiosity may emerge. A few times in my past that was the only way I got a kick in the pants.


JRobby's picture

I think we will run out of underpasses? No?

How about this picture: 30 million people with fishing lines cast into oceans, lakes & rivers hoping for some food.

americanspirit's picture

Now picture those same 30 million people emerging from the underpass, each with a weapon. It won't matter whether the weapon is a gun, a stone, a pitchfork or a noose. There are 285 cops per 100,000 people in the US. How many bankers and politicians do you think are going to last longer than 48 hours.

exi1ed0ne's picture

That's the miracle of an empty belly.  Just dump a truck of food every once in a while to keep the surfs docile and fighting amongst themselves for the scraps.  Politicians will be heros, but your neighbor will be a dirty sonnavabitch for taking two slices of bread over your one.

Urban Redneck's picture

"Costs" are big in DC this administration, but what they are and who pays them is not open for public discussion.

ghostzapper's picture

MOAR Bieber and MOAR Kardashians!!!!   MOAR calories for MOAR fat kiddies emulating fat, obese, disgusting parents over this Holiday season while we max out our credit cards to support the gubmint data.  MOAR!!!!!!   Booyah!

scythian empire's picture

Yeah you're the real American. The real genius.  That's why you're on a message board.  People should hear YOU. 


This is the dumbest article ever.  

pods's picture

Thank you government.

NoDebt's picture


Line of reasoning:  TARP required Congressional approval.  When The Fed started buying troubled mortgage assets out of the banks (MBS) in their QE3 program did they ask Congress for permission to do so?  No.  So why did they need Congressional approval to do allegedly that exact same thing under TARP?  Because they were lying from the get-go.  They always knew the money was going to be used for recapitalization.

The "troubled assets" on bank balance sheets were dealt with a few months later when when mark-to-market accounting was "temporarily" suspended on those assets (and has never been reinstituted).  QE3 quietly took them off the banks books permanently. 

THAT'S the real lie, what was ACTUALLY done and under the cover of what lies,  not this phoney-baloney issue of a "rate of return" on the TARP bailouts.  That's a total red herring.  Financial repression was coming whether the TARP program happened or not.

RaceToTheBottom's picture

Temporary Accounting suspensions can never be un-done, not unless we default and set the slate clean, but that would require too much honesty.


lunaticfringe's picture

You nailed it. Every bank was bankrupt. They stole taxpayer money, changed accounting rules, implemented ZIRP and saved trillions in interest owed to depositors, levered savings deposits into 4% treasuries, and printed away- fixing their fucked up balance sheets. That's all this has ever been- one big fucking con job sold to dumb Americans to make banks solvent and keep their cushy jobs.

Duc888's picture

I remember I was working at Electric Boat (M.E.) at the time and mentioned this to my co-workers. They all thought I was completely off my rocker.

lunaticfringe's picture

Wrong. People have predicted this for 6 years. Name one reason that it can't go another 6.

Downtoolong's picture

Michael Lewis put it another way.

“It wasn’t a coordinated conspiracy among bankers that led to the financial crisis. The conspiracy began immediately after the crisis occurred.”

The best con is always one where the victim doesn’t even know he’s been conned.

Winston Churchill's picture

Helps when the mark is convinced he's exceptional.

A very old playbook.


frankinpetca's picture

Don't vote for incumbents, they supported it and will continue to do so, unless there is a voter revolution. It is so simple, but takes time. I already do it and it feels so good. I have also chosen to not pay credit card fees, and when they try to collect, I will go back to cash and let those CC bastards find out how it feels to be ripped off, I mean over-charged. A return to a simple life, not sweating FICA scores and feeling like you have to please everyone, but yourself. Rise up, people and establish the authority of numbers, that no other faction, can overcome. Vote out the political extremists and re-elect only someone like Senator E Warren, who partially recognises her compatriots are ringers! Since she is an incumbant, then vote her out if the rule has to be followed exactly without much, much consideration. Those who are running have to publish a resume of accomplishments and what is their main goal as a public servant and not as a politician. Here I tell myself, keep it simple stupid (KISS), and I try to cover every base within a short paragraph. Thanks Zero Hedge for a place to voice my opinions which come from one who is going to be eighty years in a few weeks. Also thanks, Greater Power for this blessing.

begintowin's picture

You wrote, "Vote out the incumbents ...".

Replacing incumbents with "new challengers" just keeps the political system of corruption running smoothly.

What the American people MUST do is abstain from voting in national elections all together. By not voting you implicitly declare a "vote of no confidence" for the red team or the blue team cabal of miscreants that have usurped our freedoms and liberties and stolen our wealth and property rights through stealth inflation and debasement of the money supply.

Not voting is the proper course of action the Citizens of the United States have to do to stop this evil!

JRobby's picture

TARP was a taxpayer ass fucking with a 40 grit condom.

No reach around. ALL PR, transfer fiatso's from the treasury directly to the banksters.

Hail Spode's picture

Injustice or generational justice?  The boomers cheerfully bought massive amounts of government and passed the bill onto the next generation.  Now, in large part to keep its interest costs down on that debt, the government is looting the savers who are largely boomers.  It is only injustice for those boomers who not just voted but actually worked against big government on the way.   You may say they had no one to vote for because their choice was one big government party that said so and another which lied about it.  To that I say yes, and as soon as it was apparent they were being lied to they should have dumped the GOP and reverted to self-government.  Nowhere in the consitution does it say they have to access our government via the Rs or Ds.

gcjohns1971's picture

Except for the GEN X'ers right behind them, who voted for guys like Ross Perot, and said to Big Government "No! No! No!".  In return for their un-thief-ish fidelity, they've experienced the run on their savings that the Boomers have, and taken the bulk of the hit to their portfolios in the crisis... which the boomers have not.

The plan for aging GEN Xer's, when they can work no more, whose savings has been systematically stolen over their lives, and whose scraps were halved to make bankers whole, is simply to find a comfortable way to die.

Livermore Legend's picture

".....Injustice or generational justice?...."

Indeed the Correct Question...... 

pankowboy's picture

Kruggy never mentioned any of this!

Budd aka Sidewinder's picture

I dare venture to say that all of my college educated neoconservative Zionist warvangelical Christian in-laws will be far more interested this Christmas Eve and Day dinner in jerking off to talking about the heroic American Sniper Chris Kyle than they would in either reading or being able to comprehend one word of this article

Kill me

MachoMan's picture

A material portion of the TARP funds were simply repaid with new loans from other governmental sources.  Here is a link to part of the issue, but I suspect there were other programs as well:

So, if I was going to write the article on ZH, I would start with the fact that the TARP loans haven't actually been repaid, in any reasonable use of the word.  Then I would get into the tax on savers.

Winston Churchill's picture

I doubt the other $12trn the FegRes secretly lent has either.

Oscar Mayer's picture

As long as people keep conflating bankster generated Credit with Fiat Legal Tender, they're gonna keep getting their analysis wrong.


Credit holds no legal status as 'money' or a 'currency', not even when it's issued by the Fed or 'spent' by the government.  It is a promise or an assumption that fiat legal tender will eventually be paid.  Don't hold your breath while waiting....


P.S. 100% of all deposit accounts are credit, a.k.a. Bank Debt.