The National Recovery Trust

A comment on this blog implied (if I understood it  correctly) that the Treasury has constructed an hidden, unwritten, informal, and illegal trust.  This National Recovery Trust, a 21st century analogy to the National Recovery Administration, discourages banks and financial institutions from competing against each other, as they would have to make up for each others losses, if those losses imperiled their ability to pay back their TARP loans.

The National Recovery Trust is not the only criminal activity the Treasury department is being accused of engaging in:

STEVE HENN: If Henry Paulson and Ben Bernanke really told the CEO of Bank of America to keep quiet about losses at Merrill Lynch, they were probably breaking the law. That’s according to Lynn Turner, former chief accountant at the SEC.

LYNN TURNER: If these allegations are proven true, both Bernanke and Paulson should be prosecuted by the SEC to the fullest extent of the law.

Paulson told investigators that he threatened to have Ken Lewis fired but that he didn’t instruct Bank of America to withhold material information. Ken Lewis says he did.

This isn’t the only time officials have allegedly pressured companies concerning SEC disclosures. Regulators reportedly leaned on Freddie Mac executives not to reveal that an administration foreclosure prevention program could cost the company $30 billion. John Coffee, a securities expert at Columbia University, says there’s an inherent problem when firms are privately run in name only.

via Marketplace: Did government block transparency?.

My idea for prosecution of officials in the Treasury Department is becoming less fanciful with each passing day.

2 thoughts on “The National Recovery Trust”

  1. This paragraph from wik’a gives an explanation:

    This provision was a big factor in the eventual passage the EESA. It gives the taxpayer the opportunity to “be repaid.” The recoupment provision requires the Director of the Office of Management and Budget to submit a report on TARP’s financial status to Congress five years after its enactment. If TARP has not been able to recoup its outlays through the sale of the assets, the Act requires the President to submit a plan to Congress to recoup the losses from the financial industry. Theoretically, this prevents TARP from adding to the national debt. The use of the term “financial industry” in the provision leaves open the possibility that such a plan would involve the entire financial sector rather than only those institutions that availed themselves of TARP.[2]

    It’s very squishy. In 5 years, the federal government could have fantastic gains on the warrants. How they will add all that up is unexplained.

  2. sonofsamphm1c,

    Agreed that it’s squishy, in the sense of politically meaningless.

    Thus, the assertion that these giveaways were designed in a way that the taxpayer will get lost money back is either meaningless, or implies the existence of an illegal and informal National Recovery Administration.

    I hope the assertion is merely meaningless.

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