Economies: so that's where the TARP money is going

Someone in the LaLa land that is the US Government has a full time job thinking up stupid names for legislation and "programs" so they can become buzzwords. From the USA PATRIOT Act (the so-called "short title" of the Act is "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001") to the Troubled Assets Relief Program ("TARP") there appears to be more focus on the PR benefits of a name than on the substance of what it relates to.

So what has happened to the money?

The amount promised when it was thought that the only way to avert a worse crisis than the one then was to throw money at it, the US followed the UK's Gordon Brown (who claimed to have saved the world) and put up USD700 milliard.

But now that almost half of that money has been spent and most of the rest hypothecated the situation has not improved.

The US Treasury has handed out hundreds of thousands of millions of dollars to the banks. They said the money was to get credit circulating. But it has not.

Handed first one large sum then another, insurance group AIG splurged on parties for their staff and agents.Having had USD40,000 million, the company has now decided that its previous strategy of not selling off business units might have been wrong. As prices hit the floor, AIG has now put a number of units - previously told they were absolutely not for sale - on the market.

Citigroup has had 20 milliard - and been told by the Treasury that it cannot spend USD50 million of it on a corporate jet.

And that's just the start of it: Bank of America bought Merrill Lynch - and then needed TARP funds to cover unexpected liabilities including huge bonuses allegedly paid in advance of their due date. It would, surely, have been better to let Merrill fail than to hand USD45,000 million to BofA to fix that and other problems?

Many of the payments to banks have not been loans but guarantees given to other banks to cover inter-bank lending, maintaining the fiction that there is actually some money in the system, and also backed by taking a variety of types of shares in the institutions.

But, with the exception of Detroit, the money has all gone into banks. Where it has mostly stayed.

Where it has not gone is into the planned support of homeowners and small businesses. Indeed, arguably, the support of the motor industry was done to bypass the banking sector which had failed to support that industry, even as it was being given the money to do so.

So where is it going? Answer - it's going back into the tumble dryer that bankers understand: public companies buying other public companies from other people in the same market.

A few days ago, Pfizer announced that it was to shed 19,000 jobs. It also announced that it was making a bid for Wyeth. But if Pfizer could not afford to keep so many people on its payroll, how could it afford Wyeth. Answer - it would borrow the money from the banks - those very same banks that have been charged with extending credit to get the economy moving.

So how will borrowing USD22.5 thousand million to make up its shortfall on the USD68 thousand million purchase price benefit the general economy. Answer - it won't. What it will do is pass money around between the wealthy and institutional investors. But it won't mean any support for the real economy, it won't mean jobs are safe (in fact, some commentators reckon that there will be mass redundancies at Wyeth) and it won't mean that businesses that support those companies will see any benefit.

But the figures will show that more than USD22 thousand million has been lent and that TARP is a success. Pfizer launched its call for funds in an expensive hotel. No hint of cost-cutting.

As Obama and Giethner press for TARP2, one thing is clear. Give a banker the money, and he'll keep it in the family before he'll help the little guy.

The whole system needs a re-think.