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Home Publications Blogs Beat the Press The Return of the TARP Lie About the Commercial Paper Market

The Return of the TARP Lie About the Commercial Paper Market

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Monday, 25 October 2010 12:11

In September of 2008 Federal Reserve Board Chairman Ben Bernanke deliberately misled Congress. He told them that they had to approve the $700 billion TARP bailout because the commercial paper markets were shutting down.

A shutdown of the commercial paper markets would genuinely have been disastrous for the economy since most major corporations are dependent on issuing commercial paper for meeting payroll and other ongoing expenses. If even healthy companies couldn't raise money through the commercial paper market then we would be looking at an economic collapse in fairly short order.

Bernanke was deceiving Congress with his discussion of the commercial paper market because he single handedly possessed the ability to support the commercial paper market. In fact, the weekend after Congress voted for the TARP he announced that he would create a special Fed lending facility to directly buy commercial paper from non-financial companies.

If Bernanke had been honest with Congress he could have told them of his plans to create such a facility before they voted on TARP and explained that the commercial paper market could be sustained whether or not they approved the TARP bailout.

This is worth mentioning now because this hoary lie keeps popping up. Let's be clear, it was important for the Fed/government to take steps to sustain a working financial system. But these steps could have included conditions that made Wall Street pay a huge price and change its mode of operation forever.

The decision to give the money essentially without conditions was a political decision that was attributable to the banks' political power. As a result, these parasites are more economically and politically powerful than ever. The public should know the truth even if they lack the money to do anything about it.

Comments (10)Add Comment
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written by izzatzo, October 25, 2010 2:11
See Bubba, I told you Dean Baker was a friend of Teabaggers. He agrees with us that TARP was a fraudulent big government giveaway.

Now all we have to do is convince our financial sponsors and MSM that TARP wasn't necessary to save us from a Second Great Depression.

It's a piece of populist cake. Let's use it to turn the elections into a Republican landside.
TARP vs Dodd-Frank
written by Ed Dolan, October 25, 2010 2:11
So true. It is a pity that the Dodd-Frank financial reform bill was not written until almost two years after TARP. By then, the magic moment when the government had the leverage to wring some real concessions out of the banks had evaporated, and the final product was full of compromises. The same thing is happening with Basel III.
Here! Here!
written by John Donnelly, October 25, 2010 2:22
Nice post. I always look forward to your clear explanations of what is going on in the press and in the real world.
Thanks!
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written by AndrewS, October 25, 2010 3:40
How does the Republican created "fraudulent big government giveaway" merit a "Republican landside"?

And I mean created in both senses; they created it's necessity and then created the program itself.
Thanks for the reminder
written by Scott Peterson, October 25, 2010 8:26
Clearly Bernanke was cooperating with Treasury Sec. Paulson to orchestrate the TARP steamrolling of Congress.
Social Engineering to squeeze more out of working people
written by Scott ffolliott, October 25, 2010 9:47
Social Engineering to squeeze more out of working people

"Let's just speak of using the incredible wealth of the earth for human beings, Give people what they need: food, medicine, clean air, pure water, trees and grass, pleasant homes to live in, some hours of work, more hours of leisure."- Howard Zinn
You mean Yiggles is wrong? Pshaw!
written by Ellen1910, October 26, 2010 2:32
But absent some kind of (nominally) costly and unpopular bailout . . . —TARP and the AIG bailout, primarily— . . . we would have had a costly and unpopular sequence in which people’s “safe” money market accounts were wiped out, to say nothing of perfectly solvent firms being suddenly unable to meet payroll. "The Money Market Run"
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written by Ellen1910, October 26, 2010 2:39
The Money Market Run
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written by skeptonomist, October 26, 2010 9:17
The claim that the commercial paper market had "frozen up" at the time was exaggerated, to say the least, like the claim that commercial (non-investment) banks had "stopped lending". CP volume was not notably decreased and rates for lower-rated paper went up only to where they were a few months earlier (highest-rated paper was not affected). Looking at the actual data instead of relying on anecdotes would have shown that the claim that Main Street had already been affected by then was false.
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written by boxer, November 03, 2010 9:12

These SOB's do whatever they want knowing they won't be held accountable nor suffer any financial loss. That must change then they will start doing right by the people.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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