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Neil Kashkari wrote up the U.S. Treasury department’s Break the Glass Bank Recapitalization Plan in April, 2008—months before the financial crisis—as a “just in case.” It was essentially the TARP program.  Karshkari states in his plan that governmental purchases of toxic mortgage-based assets would do “nothing to help homeowners without [there being] a complimentary program.” He notes that should there be a crisis, “there would be enormous political pressure” for relief going to homeowners in trouble.  Considering the noted downside to his plan, he may have viewed any such pressure from “the masses” as a problem to be ignored rather than even assuaged.  He also admits in his plan that it would provide “no guarantee banks [would] resume lending.”  It is odd that his was made explicit yet not dealt with.  He does gloss an alternative option (C) that would involve refinancing the troubled mortgages, though he assumes a (needlessly cumbersome) case by case basis and that the servicers would determine which loans to put into the program.  The culprits could opt out to insist on the higher payments. In other words, Kashkari was assuming that the government shouldn’t or couldn’t force the banks to take write-downs.  As a former Goldman Sachs man himself (like his boss at the time, Henry Paulson), Kashkari probably didn’t want to propose anything that the bankers wouldn’t view as being in their interest.

In December of 2009, a spokesperson at Bank of America announced that the bank would pay back its $45 billion in US Government aid. The government is all in favor of such repayments.  “As banks replace Treasury investments with private capital, confidence in the financial system increases, taxpayers are made whole, and government’s unprecedented involvement in the private sector lessens,” said Andrew Williams, a spokesman for the Treasury.  The Obama administration had already begun talking with lawmakers about using unspent money from the financial bailout program to help offset the costs of spending to create jobs.

As laudable as efforts to reduce unemployment are, the government is essentially skipping stones over the homeowners in trouble and facing foreclosure.  It could be argued that a “bottom up” approach to TARP—using it to help with mortgage payments (while enabling the government to impose refinancing on the adjustable-rate sub-prime mortgages) would have obviated the foreclosures while prompting further bank lending.  To skip over such a use as banks repay the government suggests that the government officials are not willing to put our money where their mouths are—such as in “pressing” banks to do better in refinancing.  In other words, it is telling that a use that is closer-related to the purpose of TARP was being (yet again) skipped over—only that time so that a purpose further from the mission of the TARP program could be funded.  Sometimes it is worth noting what people decide not to do…