Federal Overseer Notes Small Banks Can't Pay Back TARP Funds

Remember TARP? This program, invented during the cusp of the Bush-Obama administrations, essentially loaned a kaput American finance industry enough capital to keep itself afloat. The notion was that American taxpayers would receive dividends on its loan, and financial firms would pay back loaned money.

The largest firms have benefitted from this arrangement, while smaller community banks have struggled. That imbalance continues today, according to a report issued by Special Inspector General for the TARP Christy Romero. According to a story in marketwatch.com, Romero noted that nearly one-half of the remaining banks in the TARP program are behind in their dividend payments. Why? Community banks, according to the marketwatch.com story, "cannot find new capital. (Romero's report) noted that community banks with less than $1.5 billion in assets typically don't have access to capital from private equity firms, mutual funds, foundations, and other institutional investors."

The government report also observed that the US Treasury has "already written off or realized losses of $14 billion in TARP investments."

One curiosity about this story is the limited coverage it received. The story did get play in The Wall Street Journal and The American Banker. Some UK newspapers paid attention. And that was about it. The TARP story is a complicated, ominous one that underlines some uncomfortable facts. It's not as sexy as beating the drum for the latest gadget or social media whizbang. It's not as "helpful" as informing the public about how their intuition is wrong and that everything really is better. It doesn't help either presidential candidate and his "message." A lot of very powerful people and institutions want TARP swept under the rug. Will major media outlets, recently getting a wake-up call from a Pulitzer Prize committee that recently stiffed them, rise to the occasion?

Thain: Lehman Bailout Would Have Prevented TARP

The Bloomberg media empire, whatever its flaws, has performed some fine work exploring the 2008 bursting of America's financial boil. Its reporters have filed Freedom of Information Acts, the successful pursuit of which have brought to public light unsavory, discomfiting details about the financial markets and their interactions with federal agencies. Bloomberg's reporters have probed material gathered in testimony, gone to court, and basically done the dirty work that is the core of investigative journalism.

A case in point is today's simple story from Bloomberg reporter Hugh Son. In it, Son cites audio files released from the Financial Crisis Inquiry Commission focusing on comments submitted by John Thain.

Thain's thesis is that, had the Feds bailed out Lehman, the self-inflicted torpedoing of the American economy and subsequent (and largely misunderstood) TARP bailout would not have been necessary.

John who? How quickly we forget. Thain, currently CEO of CIT, was el primero at Merrill Lynch during the 2008 disaster. A former NYSE chairman, Thain stage managed the grafting of two wildly opposite enterprises -- Merrill and Bank of America -- into one splendid taxpayer subsidized catastrophe. He also had a hand in Merrill employees getting $4 billion in bonuses while the firm was plunging into the fiscal abyss. It has been strongly suspected, though unproven, that TARP funds paid for Merrill's way of saying goodbye.

For his part, Thain originally demanded a bonus for his role in the Merrill-BOA merger. He asked for $10 million in addition to his lavish compensation package. How lavish? In 1987, Thain earned around $83 million for his labors.

Thain, whose name rhymes with "vain," displayed an amazingly arrogant sense of entitlement throughout his career. The most egregious example of this behavior was his spending on his Merrill corporate suite. In early 2008, Thain had the firm pay over $1 million to redo two conference rooms, a reception area, and Thain's personal office. A $35,000 commode, part of the redecorating, was included in the deal. Only after those details became public information, and a source of outrage, did Thain reach into his pockets and pony up. (That leaves $82 million remaining from the 2007 compensation alone, in case you're keeping score at home.)

The former Merrill CEO still has powerful friends, as the linked relationship map from muckety.com suggests. He is a prominent Republican Party member and was among John McCain's economic advisors during the Arizona senator's unsuccessful run for the presidency. It's unknown whether Thain advocated for a continuation of the Bush tax breaks to the wealthiest 1% of Americans.