World Politics News   Articles for World Politics Course

The recent political turmoil in European elections has isolated Germany as the sole remaining champion of austerity as the principal policy response to the eurozone crisis, and the Germans seem to be aware of this development.  Germany’s interpretation of this change is affected by its knowledge that it remains the only real source of money for the eurozone, even if it remains isolated.  The key now is how domestic politics in Germany responds to this unique circumstance.  It could signal a change in the austerity policy, or it could make the Germans more adamantly opposed to any stimulus policy.

The Office of the Special Inspector General for the Troubled Asset Relief Program (TARP) issued its quarterly report today.  Its conclusions are devastating.  Some highlights:

• “After 3½ years, the Troubled Asset Relief Program (“TARP”) continues to be an active and significant part of the Government’s response to the financial crisis. It is a widely held misconception that TARP will make a profit. The most recent cost estimate for TARP is a loss of $60 billion. Taxpayers are still owed $118.5 billion (including $14 billion written off or otherwise lost).”
• “In 2008, Treasury and regulators were caught by surprise by the bursting of the housing bubble and the realization that the distress of even one too-big-to-fail institution could shake the very foundation of our financial system. The largest U.S. banks still dominate the industry – just as they did in 2008. The largest banks have gotten larger and more concentrated as a result of the financial crisis because some too-big-to-fail institutions acquired the assets of other banking institutions. According to Federal Reserve data, five financial institutions – JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co., and Goldman Sachs Group Inc. – held $8.5 trillion in assets at the end of 2011, equal to 56 percent of U.S. economic output, whereas before the financial crisis, these institutions held approximately $6.1 trillion in assets, equal to 43 percent of U.S. economic output.”
• “Additionally, many of TARP’s goals have not been met. Even though the explicit goal of TARP’s Capital Purchase Program was to increase lending to U.S. consumers and businesses, the recent Federal Reserve working paper confirmed that the largest banks that received TARP funds did not increase their lending. In fact, these institutions have been lending less than their counterparts that did not receive a bailout.”
• “Many smaller and medium-size banks are still feeling the effects of the crisis and are not exiting TARP with the same speed as the larger banks. More than 400 financial institutions remain in TARP. After 3½ years, Treasury has no concrete plan to help the remaining institutions get out of TARP and get back on their feet.”
• “During a crisis of record numbers of foreclosures and high unemployment, TARP is not reaching homeowners as was originally intended by Congress. TARP’s explicit goals of preserving homeownership and promoting jobs were evidence that Congress wanted to help homeowners during this crisis, not just banks. However, these TARP goals have not yet been met while foreclosure filings have remained high (3.8 million in 2010, 2.7 million in 2011, according to RealtyTrac).”

In short, we are worse off now than we were in 2007-08, and the “too-big-to-fail” banks are even bigger now than they were then.  Not much to show for $700 billion.

Argentina has passed the necessary legislation to nationalize the oil company, YPF, which is 51% owned by the Spanish oil company, Repsol.  This act is sure to set off tense relations between Argentina and many other countries.  Nationalizations are perfectly permissible under international law, but the terms of repayment are always hotly contested.   I am certain this case will not be an exception.