WEBVTT 00:00:00.000 --> 00:00:02.660 If I told you the United States government spent 00:00:02.660 --> 00:00:06.780 $700 billion to bail out Wall Street in the middle 00:00:06.780 --> 00:00:09.720 of a global financial meltdown and somehow walked 00:00:09.720 --> 00:00:12.279 away claiming they made a $15 billion profit. 00:00:12.439 --> 00:00:14.519 Wait, no, I'm not using dots. They walked away 00:00:14.519 --> 00:00:16.899 claiming they made a $15 billion profit. You 00:00:16.899 --> 00:00:18.940 would probably ask to see the receipts. Oh, absolutely. 00:00:19.179 --> 00:00:21.420 I mean, anyone looking at a claim like that should 00:00:21.420 --> 00:00:23.899 demand the receipts, especially given the sheer 00:00:24.059 --> 00:00:27.399 you know, scale of the 2008 crisis. When we start 00:00:27.399 --> 00:00:29.519 looking at the actual ledger from that period, 00:00:29.899 --> 00:00:32.799 the traditional math like basic profit and loss, 00:00:32.820 --> 00:00:35.619 it becomes incredibly distorted. Right. Well, 00:00:35.740 --> 00:00:38.719 welcome to the deep dive. Today we are taking 00:00:38.719 --> 00:00:41.229 you. curious learner sitting right here with 00:00:41.229 --> 00:00:44.450 us back to the absolute chaos of 2008. We have 00:00:44.450 --> 00:00:47.210 a massive stack of source material today. It's 00:00:47.210 --> 00:00:49.770 a comprehensive breakdown of the troubled asset 00:00:49.770 --> 00:00:52.429 relief program. Which most people probably just 00:00:52.429 --> 00:00:55.170 know as TARP. Exactly TARP and our mission today 00:00:55.170 --> 00:00:57.810 is to cut through all the impossibly dense financial 00:00:57.810 --> 00:01:00.549 jargon and frankly the endless partisan noise. 00:01:01.090 --> 00:01:03.030 We're going to uncover what really happened when 00:01:03.030 --> 00:01:04.810 the US government just wrote a massive check 00:01:04.810 --> 00:01:07.040 to save the economy. Yeah, because the official 00:01:07.040 --> 00:01:09.560 narrative presents a very clean conclusion, right? 00:01:10.340 --> 00:01:12.519 The government intervene, they stabilize the 00:01:12.519 --> 00:01:16.159 system, and eventually they turn a $15 .3 billion 00:01:16.159 --> 00:01:19.019 surplus. But as we comb through these sources, 00:01:19.579 --> 00:01:22.340 we find that the math behind that reported profit 00:01:22.340 --> 00:01:26.450 is... Well, it's a lot more complicated. It's 00:01:26.450 --> 00:01:28.530 arguably a complete illusion. It really is. It's 00:01:28.530 --> 00:01:30.709 far more complicated than just a simple ledger 00:01:30.709 --> 00:01:33.730 entry. Okay, let's unpack this. To understand 00:01:33.730 --> 00:01:35.890 how the government calculated its profits or 00:01:35.890 --> 00:01:38.659 losses, we first have to understand what it thought 00:01:38.659 --> 00:01:41.640 it was buying versus what it, you know, actually 00:01:41.640 --> 00:01:44.099 bought. Right, because the pivot in strategy 00:01:44.099 --> 00:01:46.079 right at the very beginning of this program is 00:01:46.079 --> 00:01:48.500 fundamental to literally everything that follows. 00:01:48.579 --> 00:01:50.640 Totally. So set the scene for us. Sure. So it's 00:01:50.640 --> 00:01:54.000 the fall of 2008. The Emergency Economic Stabilization 00:01:54.000 --> 00:01:56.900 Act, or ESA, is passed by Congress and signed 00:01:56.900 --> 00:01:59.040 into law by President George W. Bush. Right. 00:01:59.319 --> 00:02:01.859 And this legislation officially creates TARP, 00:02:02.099 --> 00:02:04.319 authorizing the Treasury to spend up to $700 00:02:04.319 --> 00:02:08.039 billion. And the initial pitch from the Treasury 00:02:08.039 --> 00:02:10.039 Department, led by Henry Paulson at the time, 00:02:10.340 --> 00:02:12.780 was highly specific, right? Like they wanted 00:02:12.780 --> 00:02:17.840 to purchase troubled assets. Yes. Primarily collateralized 00:02:17.840 --> 00:02:21.259 debt obligations or CDOs. These were tied to 00:02:21.259 --> 00:02:24.419 mortgages originated before March 14th, 2008. 00:02:24.900 --> 00:02:27.620 The infamous toxic assets. We always hear that 00:02:27.620 --> 00:02:30.969 term. Exactly. And to understand why they were 00:02:30.969 --> 00:02:32.750 considered toxic, you got to look at their mechanics. 00:02:33.229 --> 00:02:36.650 A CDO was essentially a massive bundle of thousands 00:02:36.650 --> 00:02:39.349 of individual mortgages, sliced up into different 00:02:39.349 --> 00:02:42.490 risk categories and sold to investors. As long 00:02:42.490 --> 00:02:45.090 as homeowners paid their mortgages, cash flowed. 00:02:45.330 --> 00:02:47.490 But when the housing bubble burst and widespread 00:02:47.490 --> 00:02:50.250 foreclosures began, that cash flow just stopped. 00:02:50.550 --> 00:02:53.250 And suddenly no one knew exactly which specific 00:02:53.250 --> 00:02:56.349 mortgages inside these massive bundles were actually 00:02:56.349 --> 00:02:58.530 failing. Right. Because they couldn't see inside 00:02:58.530 --> 00:03:00.069 the bundles, nobody could figure out what they 00:03:00.069 --> 00:03:02.110 were actually worth. So the market just completely 00:03:02.110 --> 00:03:04.610 freezes. Completely. The banks were holding billions 00:03:04.610 --> 00:03:06.629 of dollars in assets that they literally could 00:03:06.629 --> 00:03:09.270 not sell. So the Treasury's original plan was 00:03:09.270 --> 00:03:12.389 to act as the buyer of last resort. Because they 00:03:12.389 --> 00:03:14.699 figured. If the government steps in and buys 00:03:14.699 --> 00:03:18.000 these illiquid toxic assets, it clears the bank's 00:03:18.000 --> 00:03:19.800 balance sheets. That was a theory. They believed 00:03:19.800 --> 00:03:22.680 the panic had driven prices artificially low, 00:03:23.099 --> 00:03:25.900 that the assets were simply oversold. The idea 00:03:25.900 --> 00:03:28.759 was if the government absorbs them, trust returns, 00:03:29.120 --> 00:03:31.620 lending unfreezes, and eventually the government 00:03:31.620 --> 00:03:34.240 sells those assets back at a profit. Right. But 00:03:34.240 --> 00:03:36.870 then... Gordon Brown, the UK prime minister at 00:03:36.870 --> 00:03:39.030 the time, visits the White House for an international 00:03:39.030 --> 00:03:41.930 summit, and the entire US strategy just shifts 00:03:41.930 --> 00:03:44.169 practically overnight. Yeah, the UK was running 00:03:44.169 --> 00:03:46.560 a completely different playbook. Instead of trying 00:03:46.560 --> 00:03:49.699 to buy up untraceable toxic mortgages, the UK 00:03:49.699 --> 00:03:52.400 model focused on directly infusing capital into 00:03:52.400 --> 00:03:54.840 the banks themselves. Like buying preferred stock 00:03:54.840 --> 00:03:57.419 and offering debt guarantees. Exactly. And the 00:03:57.419 --> 00:03:59.960 U .S. Treasury takes one look at this and realizes 00:03:59.960 --> 00:04:02.919 their original plan of buying toxic assets is 00:04:02.919 --> 00:04:05.000 just going to take way too long. So they pivot. 00:04:05.319 --> 00:04:08.500 They pivot hard. They take the first 250 billion 00:04:08.500 --> 00:04:10.979 dollars of TARP funds and launch the capital 00:04:10.979 --> 00:04:13.280 purchase program. Which means, instead of buying 00:04:13.280 --> 00:04:16.360 the bad mortgages, the US government starts buying 00:04:16.360 --> 00:04:19.000 ownership stakes in a wide variety of banks. 00:04:20.000 --> 00:04:22.579 Like, okay, imagine telling your family you're 00:04:22.579 --> 00:04:25.160 taking out a loan to buy a reliable minivan because 00:04:25.160 --> 00:04:27.860 you need to get to work. But then you come home 00:04:27.860 --> 00:04:30.060 and you're like, good news, I didn't buy the 00:04:30.060 --> 00:04:33.019 minivan, I used the money to buy a 20 % ownership 00:04:33.019 --> 00:04:35.879 stake in the entire car dealership instead. That's 00:04:35.879 --> 00:04:38.560 a great way to put it. And what's fascinating 00:04:38.560 --> 00:04:41.300 here is how this pivot fundamentally changed 00:04:41.300 --> 00:04:44.899 the government's role. I mean, injecting capital 00:04:44.899 --> 00:04:47.519 directly into banks is a completely different 00:04:47.519 --> 00:04:49.839 mechanism than just buying assets. Yeah, it's 00:04:49.839 --> 00:04:51.660 the difference between bailing water out of a 00:04:51.660 --> 00:04:53.720 sinking ship and trying to rebuild the engine 00:04:53.720 --> 00:04:55.980 while you're at sea. Right. If you buy a toxic 00:04:55.980 --> 00:04:58.040 asset, you're taking one bad loan off the books. 00:04:58.439 --> 00:05:01.139 But if you inject capital directly into a bank's 00:05:01.139 --> 00:05:03.889 equity, you trigger a financial multiplier effect. 00:05:04.389 --> 00:05:06.509 For every dollar of capital a bank holds, it 00:05:06.509 --> 00:05:08.850 can theoretically leverage that to lend out $10. 00:05:09.149 --> 00:05:13.389 Wow. 10 to 1? Yeah. And that multiplier effect 00:05:13.389 --> 00:05:16.449 was the exact justification for the pivot. Banks 00:05:16.449 --> 00:05:18.949 literally did not trust each other enough to 00:05:18.949 --> 00:05:21.910 engage in basic overnight lending anymore. The 00:05:21.910 --> 00:05:24.889 system was gridlocked. So providing direct capital 00:05:24.889 --> 00:05:27.750 was mathematically the fastest way to force liquidity 00:05:27.750 --> 00:05:31.430 back into the system? Exactly. However, by taking 00:05:31.430 --> 00:05:34.269 preferred stock in return, the U .S. government 00:05:34.269 --> 00:05:36.850 moved toward a model that some economists viewed 00:05:36.850 --> 00:05:39.449 as effectively nationalizing portions of the 00:05:39.449 --> 00:05:41.930 private banking sector. Which is wild to think 00:05:41.930 --> 00:05:44.050 about. I mean, imagine being a taxpayer watching 00:05:44.050 --> 00:05:46.790 this unfold. Overnight, your tax dollars made 00:05:46.790 --> 00:05:48.889 you an involuntary investor in Wall Street. You're 00:05:48.889 --> 00:05:51.110 forced into this massive venture capital fund 00:05:51.110 --> 00:05:53.180 that you never even signed up for. Which brings 00:05:53.180 --> 00:05:56.660 up the most complex mechanical problem the Treasury 00:05:56.660 --> 00:05:58.720 faced pricing. Right, because if the government 00:05:58.720 --> 00:06:00.680 is suddenly acting as the world's largest venture 00:06:00.680 --> 00:06:03.699 capitalist, buying up assets and equity in a 00:06:03.699 --> 00:06:05.779 market that is flatlined, how do they figure 00:06:05.779 --> 00:06:08.500 out what to pay? Exactly. The Treasury initially 00:06:08.500 --> 00:06:10.759 wanted to use a reverse auction system to price 00:06:10.759 --> 00:06:13.720 the toxic assets. In a normal auction, buyers 00:06:13.720 --> 00:06:16.850 bid the price up. But... In a reverse option, 00:06:17.089 --> 00:06:19.610 the government says, we want to buy this specific 00:06:19.610 --> 00:06:22.970 class of asset. And the banks bid the price down. 00:06:23.509 --> 00:06:25.649 Right. Competing to offer the lowest acceptable 00:06:25.649 --> 00:06:27.829 price just to get the assets off their books. 00:06:28.129 --> 00:06:30.290 That was the intention to let competitive market 00:06:30.290 --> 00:06:33.410 forces find a price floor. But when we look at 00:06:33.410 --> 00:06:35.769 the actual transactions, especially the early 00:06:35.769 --> 00:06:38.750 asset purchases, the numbers suggest those market 00:06:38.750 --> 00:06:41.329 mechanisms failed entirely. Yeah, the congressional 00:06:41.329 --> 00:06:44.100 oversight panel, the COP. They did a detailed 00:06:44.100 --> 00:06:46.620 report on this, right? They did. They analyzed 00:06:46.620 --> 00:06:49.319 the transactions by comparing them to similar 00:06:49.319 --> 00:06:51.480 securities trading at the time. And the findings 00:06:51.480 --> 00:06:53.779 are shocking. They found that the Treasury paid 00:06:53.779 --> 00:06:57.600 $254 billion for assets that were valued at only 00:06:57.600 --> 00:07:01.579 about $176 billion. Right. That is a $78 billion 00:07:01.579 --> 00:07:04.180 shortfall right out of the gate. The sources 00:07:04.180 --> 00:07:07.300 give a very specific example, October 14, 2008. 00:07:07.740 --> 00:07:10.259 The Treasury purchases $25 billion of assets 00:07:10.259 --> 00:07:13.160 from Citigroup. But the actual value. Only 15 00:07:13.160 --> 00:07:15.759 .5 billion. A massive discrepancy. So what does 00:07:15.759 --> 00:07:18.879 this all mean? They intentionally overpaid by 00:07:18.879 --> 00:07:22.980 38 % in a single transaction. That doesn't look 00:07:22.980 --> 00:07:24.819 like strategic market pricing. That looks like 00:07:24.819 --> 00:07:26.819 a hidden handout. It's like paying full sticker 00:07:26.819 --> 00:07:29.199 price for a house that is currently on fire. 00:07:29.610 --> 00:07:33.009 It really highlights the immense contradictory 00:07:33.009 --> 00:07:35.730 pressures regulators were facing. They had a 00:07:35.730 --> 00:07:38.790 mandate to protect public funds, sure, but their 00:07:38.790 --> 00:07:41.490 overriding imperative was to prevent these massive 00:07:41.490 --> 00:07:43.769 institutions from triggering a global depression. 00:07:44.670 --> 00:07:46.930 And just to be clear, we are completely impartial 00:07:46.930 --> 00:07:49.069 on the politics of this, but the sources note 00:07:49.069 --> 00:07:51.430 that critics across the entire political spectrum, 00:07:51.949 --> 00:07:53.449 from the progressive left to the free market 00:07:53.449 --> 00:07:56.529 right, condemn this as blatant corporate welfare. 00:07:56.649 --> 00:07:59.550 Yeah, nobody liked it. No. Conversely, defenders 00:07:59.550 --> 00:08:02.410 argued that overpaying was a necessary, pragmatic 00:08:02.410 --> 00:08:05.209 evil to stabilize a system that was days away 00:08:05.209 --> 00:08:08.050 from total failure. And the EC legislation did 00:08:08.050 --> 00:08:10.589 try to balance this by mandating specific guardrails 00:08:10.589 --> 00:08:12.829 to protect the taxpayer. Right, like the equity 00:08:12.829 --> 00:08:15.829 warrants. Yes. Equity warrants are a crucial 00:08:15.829 --> 00:08:18.649 financial mechanism here. When the government 00:08:18.649 --> 00:08:21.050 injected capital into a bank, they required the 00:08:21.050 --> 00:08:23.449 bank to issue warrants. Which gave the Treasury 00:08:23.449 --> 00:08:25.810 the right to purchase non -voting shares of the 00:08:25.810 --> 00:08:28.470 bank's stock. at a set price in the future. Exactly. 00:08:28.629 --> 00:08:31.149 It's a way of capturing the upside. The government 00:08:31.149 --> 00:08:33.889 assumes all the risk, so if the bank recovers 00:08:33.889 --> 00:08:37.330 and its stock soars, the taxpayers get to exercise 00:08:37.330 --> 00:08:39.870 those warrants, buy the stock at the original 00:08:39.870 --> 00:08:42.490 low price, and sell for a profit. And by making 00:08:42.490 --> 00:08:45.090 them non -voting shares? The government avoids 00:08:45.090 --> 00:08:47.090 the massive conflict of interest of actually 00:08:47.090 --> 00:08:49.190 running a private bank. Right. Nobody wanted 00:08:49.190 --> 00:08:51.889 the government setting daily bank policy. They 00:08:51.889 --> 00:08:54.610 also tried to control optics with executive compensation 00:08:54.610 --> 00:08:57.889 limits. Companies taking TARP money faced a $500 00:08:57.889 --> 00:09:01.190 ,000 cap on executive tax deductions. And they 00:09:01.190 --> 00:09:04.629 banned new golden parachutes, those massive severance 00:09:04.629 --> 00:09:07.070 packages executives get when they leave. Yes. 00:09:07.090 --> 00:09:10.539 And they instituted clawback provisions. If an 00:09:10.539 --> 00:09:13.179 executive got a massive bonus based on data that 00:09:13.179 --> 00:09:15.639 later turned out to be inaccurate or fraudulent, 00:09:16.000 --> 00:09:17.799 the government could legally force them to return 00:09:17.799 --> 00:09:19.899 the money. Plus the recoupment provision. Right. 00:09:20.159 --> 00:09:22.360 The law stated that if TARP didn't make its money 00:09:22.360 --> 00:09:24.600 back within five years, the president had to 00:09:24.600 --> 00:09:27.259 submit a plan to Congress to recoup the losses 00:09:27.259 --> 00:09:29.639 directly from the financial industry. So they 00:09:29.639 --> 00:09:31.679 wouldn't just add it to the national debt. OK. 00:09:31.740 --> 00:09:34.419 So the rules are set. The oversight is on paper 00:09:34.419 --> 00:09:36.860 and the Treasury starts wiring billions of dollars. 00:09:37.080 --> 00:09:39.870 But. Who actually got the money and did they 00:09:39.870 --> 00:09:42.269 play by those rules? Well, the scale is staggering. 00:09:42.750 --> 00:09:47.429 Total disbursed was $431 billion. Wow. The top 00:09:47.429 --> 00:09:50.509 recipients were the Titans, Citigroup got $45 00:09:50.509 --> 00:09:54.269 billion, Bank of America got $45 billion, AIG, 00:09:54.389 --> 00:09:57.690 the massive insurance conglomerate, got $67 .8 00:09:57.690 --> 00:09:59.649 billion. And it wasn't just banks. Automakers 00:09:59.649 --> 00:10:03.409 like GM and Chrysler got $79 .7 billion. Exactly. 00:10:03.610 --> 00:10:05.590 To prevent the collapse of domestic manufacturing. 00:10:05.870 --> 00:10:07.950 But the stated goal of injecting all this capital 00:10:07.950 --> 00:10:10.850 was to unfreeze credit, right? So average consumers 00:10:10.850 --> 00:10:12.970 could buy homes, small businesses could make 00:10:12.970 --> 00:10:15.470 payroll, but journalists trapped where the funds 00:10:15.470 --> 00:10:17.889 went, and the narrative completely falls apart. 00:10:18.059 --> 00:10:21.600 It really does. The New York Times did a comprehensive 00:10:21.600 --> 00:10:24.879 review of investor presentations and internal 00:10:24.879 --> 00:10:28.240 calls. They found that very few banks actually 00:10:28.240 --> 00:10:31.179 cited new consumer lending as a priority for 00:10:31.179 --> 00:10:32.980 their part funds. So what did they do with it? 00:10:33.299 --> 00:10:35.879 They viewed it as a no strings attached windfall. 00:10:36.519 --> 00:10:39.220 Many used the money to pay down their own internal 00:10:39.220 --> 00:10:42.580 debt or far more controversially to acquire other 00:10:42.580 --> 00:10:44.720 businesses. Here's where it gets really interesting 00:10:44.720 --> 00:10:48.029 because the loopholes were just massive. Let's 00:10:48.029 --> 00:10:51.029 look at PNC Financial Services. On October 24, 00:10:51.230 --> 00:10:56.929 2008, PNC gets $7 .7 billion in TARP funds. Literally 00:10:56.929 --> 00:10:59.570 hours later, they announced they're using $5 00:10:59.570 --> 00:11:02.750 .58 billion to acquire their rival national city. 00:11:02.860 --> 00:11:05.080 A bargain acquisition, essentially bankrolled 00:11:05.080 --> 00:11:06.799 by the federal government. I mean, we gave them 00:11:06.799 --> 00:11:09.620 money to unfreeze credit for average people and 00:11:09.620 --> 00:11:11.100 they used it to go shopping for other banks. 00:11:11.440 --> 00:11:13.059 It's like giving your kid lunch money and they 00:11:13.059 --> 00:11:14.980 use it to buy out the school cafeteria. How was 00:11:14.980 --> 00:11:16.960 this allowed? This raises an important question 00:11:16.960 --> 00:11:19.519 about the sheer impossibility of oversight during 00:11:19.519 --> 00:11:22.320 a cascading crisis. The regulatory bodies were 00:11:22.320 --> 00:11:24.600 just entirely overwhelmed. Yeah, Eric Thorson, 00:11:24.659 --> 00:11:27.259 the inspector general of the Treasury, he explicitly 00:11:27.259 --> 00:11:30.580 testified that the oversight of TARP was a mess 00:11:30.580 --> 00:11:33.570 due to his massive workload. Right. The volume 00:11:33.570 --> 00:11:36.070 of transactions was so huge that Congress had 00:11:36.070 --> 00:11:39.490 to establish a whole new entity, 6TARP, the Special 00:11:39.490 --> 00:11:41.450 Inspector General for TARP, just to track the 00:11:41.450 --> 00:11:44.070 money. And what about those executive compensation 00:11:44.070 --> 00:11:46.809 caps? Did those actually work? Not really. The 00:11:46.809 --> 00:11:48.990 financial industry quickly found ways around 00:11:48.990 --> 00:11:51.429 them. Compensation experts called the caps a 00:11:51.429 --> 00:11:54.409 joke. A joke. Yeah, because instead of eliminating 00:11:54.409 --> 00:11:56.730 the massive packages, which were nearly $1 .6 00:11:56.730 --> 00:12:00.110 billion in 2007, before the limits company simply 00:12:00.110 --> 00:12:02.990 deferred the pay, they restructured contracts 00:12:02.990 --> 00:12:05.129 to pay out millions once the banks officially 00:12:05.129 --> 00:12:07.850 exited the TARP program. Unbelievable. Just entirely 00:12:07.850 --> 00:12:10.029 subverting the intention of the limits. Exactly. 00:12:10.370 --> 00:12:12.450 And moving beyond the loopholes, the sources 00:12:12.450 --> 00:12:15.250 detailed deep systemic issues with how the Treasury 00:12:15.240 --> 00:12:18.720 decided who even got the money. They used secret 00:12:18.720 --> 00:12:21.179 camels ratings. Camels. What does that stand 00:12:21.179 --> 00:12:24.240 for again? It's an acronym for a supervisory 00:12:24.240 --> 00:12:27.519 rating system. Capital adequacy, asset quality, 00:12:28.019 --> 00:12:31.100 management capability, earnings, liquidity, and 00:12:31.100 --> 00:12:34.000 sensitivity to market risk. Regulators use it 00:12:34.000 --> 00:12:36.519 to give a bank a secret score from one to five. 00:12:36.940 --> 00:12:40.200 One is pristine, five is imminent failure. and 00:12:40.200 --> 00:12:42.720 they used these secret ratings to quietly pick 00:12:42.720 --> 00:12:45.919 winners and losers, hand -picking the survivors 00:12:45.919 --> 00:12:48.720 and forcing a massive consolidation of the banking 00:12:48.720 --> 00:12:51.279 industry. And the bias went beyond just the size 00:12:51.279 --> 00:12:53.899 of the banks. Academic studies showed significant 00:12:53.899 --> 00:12:56.460 political disparities. Banks headquartered in 00:12:56.460 --> 00:12:58.759 the districts of key members of Congress were 00:12:58.759 --> 00:13:01.379 notably more likely to get TARP funding. Oh, 00:13:01.379 --> 00:13:03.440 of course they were. And the demographic bias 00:13:03.440 --> 00:13:05.820 is even worse. It is. The sources cite a study 00:13:05.820 --> 00:13:07.820 on the Community Development Capital Initiative, 00:13:08.259 --> 00:13:11.019 a TARP sub program specifically meant for disadvantaged 00:13:11.019 --> 00:13:13.220 communities. And the data show that white -owned 00:13:13.220 --> 00:13:15.659 banks were 10 times more likely to receive TARP 00:13:15.659 --> 00:13:18.320 funds than black -owned banks. Even after controlling 00:13:18.320 --> 00:13:21.000 for other financial variables. 10 times. That's 00:13:21.000 --> 00:13:23.320 just wow. Yeah. And inevitably, whenever you 00:13:23.320 --> 00:13:25.659 deploy hundreds of billions of dollars this rapidly 00:13:25.659 --> 00:13:28.960 with overwhelmed oversight, you get fraud. Right. 00:13:28.980 --> 00:13:31.519 SIDGETARP to the rescue. Exactly. Neil Borowski 00:13:31.519 --> 00:13:33.679 took over SIDGETARP and repeatedly warned that 00:13:33.679 --> 00:13:35.940 the program was highly vulnerable to money laundering 00:13:35.940 --> 00:13:40.100 and collusion. They investigated over 150 cases 00:13:40.100 --> 00:13:42.379 of fraud. Resulting in 28 criminal convictions, 00:13:42.440 --> 00:13:46.779 right? Yeah. And they recovered over 151 million 00:13:46.779 --> 00:13:50.360 dollars. Like Charles Antonucci, the former president 00:13:50.360 --> 00:13:53.240 of Park Avenue Bank, who was convicted for trying 00:13:53.240 --> 00:13:56.379 to fraudulently secure 11 million in TARP funds. 00:13:56.860 --> 00:14:00.200 Yep. And even the legal documented mechanisms 00:14:00.200 --> 00:14:03.220 faced intense pushback. Remember those equity 00:14:03.220 --> 00:14:05.639 warrants? The thing designed to let taxpayers 00:14:05.639 --> 00:14:07.860 share in the profits. Yeah, the upside. The banking 00:14:07.860 --> 00:14:10.259 industry launched a massive lobbying campaign 00:14:10.259 --> 00:14:12.940 to cancel them. The American Bankers Association 00:14:12.940 --> 00:14:15.600 formally petitioned Congress calling the warrants 00:14:15.600 --> 00:14:18.580 an onerous exit fee. That is genuinely astonishing. 00:14:18.740 --> 00:14:21.399 They are saved from total ruin by public funds 00:14:21.399 --> 00:14:24.350 and their immediate response is to lobby Congress 00:14:24.350 --> 00:14:26.210 so they don't have to share the recovery profits 00:14:26.210 --> 00:14:28.450 with the very public that saved them. And canceling 00:14:28.450 --> 00:14:30.090 those warrants would have subsidized the banks 00:14:30.090 --> 00:14:33.250 by billions. For Goldman Sachs alone, independent 00:14:33.250 --> 00:14:35.350 estimates suggested canceling their warrants 00:14:35.350 --> 00:14:37.870 would have cost taxpayers between $5 and $24 00:14:37.870 --> 00:14:40.730 billion in lost returns. But Goldman Sachs actually 00:14:40.730 --> 00:14:42.750 disagreed with the Bankers Association on this, 00:14:42.830 --> 00:14:45.289 didn't they? They did. Ironically, Goldman publicly 00:14:45.289 --> 00:14:47.629 stated that taxpayers had assumed the risk and 00:14:47.629 --> 00:14:50.330 deserved a decent return. Well, ultimately, the 00:14:50.330 --> 00:14:53.100 warrants weren't canceled. So after all the bailouts, 00:14:53.240 --> 00:14:55.899 the buyouts, the deferred compensation, the fraud, 00:14:56.419 --> 00:14:59.919 the lobbying, we have to look at the final receipt. 00:15:00.220 --> 00:15:02.799 Did the taxpayer actually make money? So the 00:15:02.799 --> 00:15:06.139 program effectively ended in December 2014 when 00:15:06.139 --> 00:15:08.620 the Treasury sold its final holdings in Ally 00:15:08.620 --> 00:15:11.500 Financial. OK, what's the official math? Officially, 00:15:11.539 --> 00:15:14.519 the U .S. government booked a $15 .3 billion 00:15:14.519 --> 00:15:19.120 surplus. They earned $441 .7 billion on the $426 00:15:19.120 --> 00:15:22.230 .4 billion invested. OK, but. The government 00:15:22.230 --> 00:15:24.649 didn't just have $400 billion sitting in a checking 00:15:24.649 --> 00:15:27.269 account in 2008. They had to borrow that money 00:15:27.269 --> 00:15:29.330 to fund the bailouts. Right, deficit spending. 00:15:29.610 --> 00:15:31.830 So wait, so if we account for the interest on 00:15:31.830 --> 00:15:34.190 the national credit card used to fund this, that 00:15:34.190 --> 00:15:36.389 $15 billion profit is essentially an accounting 00:15:36.389 --> 00:15:38.590 illusion, right? If we connect this to the bigger 00:15:38.590 --> 00:15:41.850 picture, the profit entirely banishes. During 00:15:41.850 --> 00:15:43.629 the height of the program, the interest rate 00:15:43.629 --> 00:15:46.330 on U .S. government debt was between 2 % and 00:15:46.330 --> 00:15:50.039 4%. Meaning, just to service the debt, to pay 00:15:50.039 --> 00:15:52.659 the interest on the borrowed TARP money was costing 00:15:52.659 --> 00:15:55.899 the government $8 to $16 billion a year. Every 00:15:55.899 --> 00:15:58.120 single year. So when you compound that over the 00:15:58.120 --> 00:16:00.639 multi -year life of the program, the cost to 00:16:00.639 --> 00:16:03.559 carry the debt rapidly overtakes that $15 .3 00:16:03.559 --> 00:16:06.519 billion surplus. The true economic cost goes 00:16:06.519 --> 00:16:09.480 way beyond the isolated TARP ledger. Exactly. 00:16:09.740 --> 00:16:12.820 The sources cite a 2019 study by economist Deborah 00:16:12.820 --> 00:16:16.519 Lucas. She calculated the actual holistic direct 00:16:16.519 --> 00:16:19.600 costs of the 2008 crisis -related bailouts, TARP, 00:16:19.639 --> 00:16:21.960 plus other programs. And what did she find? The 00:16:21.960 --> 00:16:24.899 total direct cost was about $500 billion, or 00:16:24.899 --> 00:16:29.820 3 .5 % of GDP. 3 .5 % of the entire US GDP, which 00:16:29.820 --> 00:16:31.700 completely shatters the popular claim that there 00:16:31.700 --> 00:16:34.029 was no cost because the money was repaid. It 00:16:34.029 --> 00:16:36.850 sharply contrasts with that narrative, yes. And 00:16:36.850 --> 00:16:39.090 her study uncovered something even more revealing 00:16:39.090 --> 00:16:42.629 about who actually profited. The largest direct 00:16:42.629 --> 00:16:44.649 beneficiaries weren't struggling homeowners. 00:16:45.210 --> 00:16:47.809 They were the unsecured creditors of the massive 00:16:47.809 --> 00:16:50.429 financial institutions. Unsecured creditors. 00:16:51.070 --> 00:16:54.210 So people or institutions who lend money to a 00:16:54.210 --> 00:16:57.549 bank without requiring specific collateral, accepting 00:16:57.549 --> 00:17:00.330 a higher risk for a higher return. In a normal 00:17:00.330 --> 00:17:02.649 system, if a bank fails, they lose their money. 00:17:02.720 --> 00:17:04.839 Right, they willingly accepted the risk. But 00:17:04.839 --> 00:17:08.019 because TARP prevented the failures, those unsecured 00:17:08.019 --> 00:17:11.200 creditors were made whole. The intervention essentially 00:17:11.200 --> 00:17:13.500 transferred their private investment risk directly 00:17:13.500 --> 00:17:15.440 onto the balance sheet of the public taxpayer. 00:17:16.039 --> 00:17:19.670 And comparing that 3 .5 % of GDP cost... The 00:17:19.670 --> 00:17:21.809 savings and loan crisis of the 1980s cost about 00:17:21.809 --> 00:17:24.329 3 .2 percent, right? Yes. So the costs were astronomical, 00:17:24.569 --> 00:17:26.630 the loopholes were glaring, and the transfer 00:17:26.630 --> 00:17:29.130 of risk was unprecedented. But did it work? Well, 00:17:29.150 --> 00:17:32.349 despite the costs and controversies, a 2012 University 00:17:32.349 --> 00:17:34.750 of Chicago Booth School survey found that economists 00:17:34.750 --> 00:17:36.529 generally agreed unemployment would have been 00:17:36.529 --> 00:17:38.769 significantly higher without the program. So 00:17:38.769 --> 00:17:41.190 it's the ultimate bitter pill. The intervention 00:17:41.190 --> 00:17:43.289 successfully saved the patient from dying on 00:17:43.289 --> 00:17:45.630 the table, but the side effects were permanent, 00:17:45.990 --> 00:17:49.420 costly, and deeply controversial. That's a very 00:17:49.420 --> 00:17:52.779 accurate summary. It was a messy, flawed, and 00:17:52.779 --> 00:17:55.660 incredibly complex maneuver that changed the 00:17:55.660 --> 00:17:57.720 relationship between the US government and the 00:17:57.720 --> 00:18:00.980 financial sector forever. It really did. It proved 00:18:00.980 --> 00:18:03.920 that in a true systemic crisis, the government 00:18:03.920 --> 00:18:06.660 can instantly transform into the largest venture 00:18:06.660 --> 00:18:09.750 capitalist in the world. As we wrap up this deep 00:18:09.750 --> 00:18:12.250 dive, we want to leave you with a final thought 00:18:12.250 --> 00:18:15.769 to mull over. Absolutely. If we ever face another 00:18:15.769 --> 00:18:19.109 global economic collapse, who decides which industries 00:18:19.109 --> 00:18:21.529 are too big to fail next time? And knowing what 00:18:21.529 --> 00:18:23.329 we know now, knowing how the true math actually 00:18:23.329 --> 00:18:25.769 works, will the public demand an even bigger 00:18:25.769 --> 00:18:28.049 piece of the pie? It's the defining economic 00:18:28.049 --> 00:18:30.190 question of our era. Thank you for joining us 00:18:30.190 --> 00:18:31.990 on this deep dive. We'll catch you next time.