During a meeting in 2009 about the performance of the Home Affordable Modification Program, or HAMP, Elizabeth Warren, who was head of the Congressional Oversight Panel for the Troubled Asset Relief Program, or TARP, kept challenging Treasury Secretary Tim Geithner about the program’s lack of progress in helping homeowners. At one point, an exasperated Geithner blurted out: “We estimate that they [the banks] can handle 10 million foreclosures, over time. This program will foam the runway for them.”

The expression “foam the runway” is often used to refer to the injecting of cash into a company that’s about to go bankrupt, which is somewhat similar in principle to an airport spreading fire-suppression foam on a runway to minimize the effects of an emergency landing. What Geithner was actually saying here was that home-mortgage modifications were helping the banks by preventing all of the likely foreclosures from hitting the banking system at precisely the same time. HAMP would ultimately allow the banks to spread out the foreclosures, while they restored their financial strength with government bailouts.

Now it all makes sense
Just as Geithner uttered those words, the full meaning of the bailout of Wall Street‘s banks became crystal clear to Neil Barofsky, who was the special inspector general for TARP. Geithner was being asked about how HAMP was helping homeowners, but he responded by saying how the program would help the banks. Barofsky now understood completely that it didn’t matter if the modifications failed or if struggling borrowers ended up worse off, as long as the banks could “stretch out their pain until their profits returned.”

Barofsky describes his epiphany in his outstanding Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street. The book’s central argument is that all of the bailouts resulting from the financial crisis were ultimately designed to benefit the big Wall Street banks, and the interests of homeowners, auto dealers, and other ordinary Americans didn’t receive similar concern or attention. Barofsky, who was once a very effective prosecutor, builds an extremely detailed and compelling case against the government. I suspect that most readers will come away extremely angry about the fundamental unfairness of these bailouts.

The simple thesis that bailing out the big Wall Street banks was the overwhelming priority of the U.S. government in response to the financial crisis explains a lot. Why, for example, have there been so few criminal prosecutions related to the crisis? In a recent editorial in the Financial Times, Barofsky notes that there “would be no criminal prosecutions while the banks still teetered on the brink of collapse.” He continued: “The risk of causing them to fail, and thereby undoing all of the bailout efforts, was too high.”

And why did the ill-conceived HAMP fail so abysmally? An aggressive attempt to assist homeowners could have had adverse effects on the big banks, which would possibly, of course, put some of those institutions in jeopardy.

The …read more
Source: FULL ARTICLE at DailyFinance