Was the 2008 Bailout (TARP) Necessary?
By John K Rooney
We are told time and time again by the establishment that the $700 billion bailout of 2008 was necessary. Yet, it is clear to many who have learned to filter out media propaganda that this was not the case. Do you remember what happened immediately after the highly unpopular vote to use taxpayer funds to subsidize bankster losses? The stock market dropped and dropped big. From October 3rd, the day the president signed the bill, the Dow Industrials plunged below the 10,000 level and more than 2000 points in just 5 trading days! The index of 30 blue chips continued to trend lower until its bottom at 6594 on March 5th, 2009. What does this really tell us about the bailout?
Dow Industrial Index Chart
Short Term Dow Chart (5 min.)
Why then, did the stock market turn around from that early March period when it was obvious that the plunge was accelerating? Well, there was a change in the way banks valued assets that made the difference and the Financial Accounting Standards Board (FASB) was at the heart of this issue. Back in November 2007, mark to market accounting policy became effective which required real market (sell) prices to be used to value assets the banks held. Prior to 11/07 a more generous policy existed that resulted in more stable book values. The mark to market accounting change coincided with the real estate/mortgage debacle and the equity markets’ descent that began in the fourth quarter of 2007. When illiquid mortgage holdings were sold at pennies on the dollar, banks’ reserves collapsed, accordingly. Normal accounting would have added billions to a mega-bank’s balance sheet, but FAS 157 did the opposite. It was at this point in early March 2009 that Congress decided to introduce legislation to bring back conventional methods of appraising banks’ assets. This forced the SEC’s Accounting Standards Board to finally capitulate and they changed the policy in April. Incidentally, the FDIC’s former chair William Issac placed much of the blame for the sub-prime crisis on the SEC and its FASB unit.
In reality, the $700 billion bailout was merely a stupendous act of theater; a grand diversion from where the real action was taking place. It was a measure to show some attempt to democratize what were to be actions of a financial dictatorship. After the partial audit of the Federal Reserve’s operations during the crisis, it was discovered that the known and secretive bailouts totaled over $16 TRILLION and much of this loot went to foreign banks! The privately run Federal Reserve has continued to bail out its friends by diluting existing dollars with freshly digitized fiat. But hey, who buys meat, paper or gasoline?