Jonathan Hoenig calls out the error of Geithner's doublespeak:
In a letter to House Speaker Nancy Pelosi, Treasury Secretary Tim Geithner outlined how, by extending the Troubled Asset Relief Program (TARP), government would “continue to mitigate foreclosure for responsible American homeowners as we take the steps necessary to stabilize our housing market.”
It’s doublespeak on the highest level. Geithner isn’t talking about actual “responsible homeowners,” who, of course don’t need foreclosure mitigation because they’re actually paying their mortgages. Not for a moment would we ever consider someone not paying their Visa bill to be a “responsible credit card holder,” yet for some reason that’s how our government now refers to those who aren’t paying their mortgage.
Words aren’t subjective whims…they have meaning we use to consider, conceptualize and communicate. So call these individuals distressed or delinquent – but to refer to them as “responsible” represents nothing short of the willing suspension of reality. Those not paying their commitments are, by definition, not responsible homeowners. Secretary Geithner graduated from Dartmouth College and Johns Hopkins University – you’d assume he’d know that.
Geithner's interest in extending TARP – and the control it affords – is far from a surprise. After all, as we pointed out before he was even sworn in, it was Geithner who kicked off the vicious bailout cycle with the $29 billion pledged back in March of 2009 to help JP Morgan (JPM: 41.09*, -0.10, -0.24%) buy Bear Stearns. That amount seems like chump change now. AIG’s bailout was also enacted under his direction.
And amid all the promises, pledges and payments, we again learned that reality exists regardless of how much our government tries to paper it over. Calling delinquent homeowners “responsible” doesn’t change their payment behavior, nor does enacting programs which subsidize their behavior by transferring wealth from those who are paying their mortgage to those who are not.
The administration’s own oversight panel reports efforts to prevent foreclosure have seen limited success. Of the nearly 680,000 borrowers entered into taxpayer-subsidized trial mortgage modifications, nearly 30% aren’t making their (now) reduced payments.
TARP was originally created by Secretary Henry Paulson, who, to quote the previous president, “abandoned free-market principles to save the free-market system” and was intended, misguidedly so, to purchase the toxic asset off the books of leading financial institutions.
Soon after adoption, the plan quickly morphed into direct capital infusions, essentially a stealth partial-nationalization. President Bush declared that TARP funds could be spent on any program deemed necessary to stem the financial collapse, leading to billions being sunk into the auto industry, and eventually the two biggest manufacturing bankruptcies in U.S. history (GM and Chrysler). Now TARP is being considered for use by government for job creation.
Geithner, along with much of our political leadership on both sides of the aisle, are pragmatists, meaning they believe what’s moral is whatever works. There are no absolutes or truths, exactly why they see nothing wrong -- once again -- confiscating money from those who’ve earned it and giving it to those who have not, regardless if it’s Acorn, the banks, AIG, Chrysler or defaulting homeowners. Anything goes.
Does it work? Despite all government’s intervention, real estate has still corrected, unemployment has still shot up and the economy has still slowed. What has grown is government control, regulation and budget deficits. About the best thing TARP's defenders can say is that the world didn't melt down after it was passed. What kind of defense is that?
As traders, we’re accustomed to dealing with the facts of reality every day. Pity our own leaders don’t see themselves as bound by the same objective absolutes.
Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC.
