TARP

We're good guys, really!

Goldman Sachs, the publicly vilified former investment bank famously nicknamed a "great vampire squid wrapped around the face of humanity" by Rolling Stone's Matt Taibbi for the way its seemingly wraps its tentacles around every far flung money-making opportunity, issued a defense in its annual letter to shareholders this week. The company did not benefit by wagering that the mortgages behind the securities it originally issued and sold would default, it said. Goldman's chief operating officer Gary Cohn wrote in the letter: "The firm did not generate enormous net revenues or profits by betting against residential mortgage-related products, as some have speculated."

So, fine, Goldman didn't reap huge profits off bets against securities built upon the plummeting prospects of underwater homeowners. But that's not to say that it didn't try.

It's as good as official: Home Affordable Modification Program, the year-old government program to save homeowners from foreclosure, is a flop.

Today, the Obama administration is set to announce new aid for many homeowners in trouble, who have been beyond help under the limited rules of the old HAMP program.

Using $14 billion more from Troubled Asset Relief Program, or TARP, Treasury for the first time will support reductions of principal that borrowers owe – a crucial step in bringing underwater borrowers back into financial stability. (Ironically, Bank of America beat them to it with a principal reduction program it announced yesterday).

And there's even bigger news in store. The administration may also allow some borrowers who owe more on their mortgages than their homes are worth to refinance into new, smaller mortgages that are based on their actual home values through the Federal Housing Administration.

In his latest effort to stop the foreclosure tidal wave, President Obama, flanked by Nevada Senator Harry Reid (D), on Friday announced a Plan B for five states hardest hit by the housing crisis: Nevada, Florida, Michigan, California, and Arizona. The president is directing an additional $1.5 billion in aid to the states, which they can spend as they choose.

It's small change compared to the $50 billion the feds have committed so far to the Home Affordable Modification Program, but don't be deceived. This could be the first baby step toward real help for homeowners – if the states play their cards right.

With home prices continuing to plummet every month, it may be hard to believe. But it's now officially government policy to keep those home values as high as possible. And Neil Barofsky, the Special Inspector General of the Troubled Asset Relief Program, doesn't like it one bit.

In his latest quarterly report to Congress, Barofsky accuses the Obama administration of recklessly reinflating the real estate bubble in an attempt to keep the housing market going and prevent the collapse of financial institutions.

Watching the CEOs of America's largest banks testifying this week to Congress about their roles in starting The Great Recession with varying levels of contrition and defiance raises the question: exactly who are banks really accountable to in these post-TARP days?

Who's the boss? Shareholders? Taxpayers? Customers (whom they routinely bet against)? The government? Some banks have repaid their TARP money but still borrow nightly from the Fed for next to nothing. Where do their allegiances lie?

The recession is over, we're told by Bernanke, Geithner, and Summers, it's time for an exit strategy, to wind down the economic stimulus before it turns inflationary. Big banks are booming, TARP funds are coming home to roost, the market's up, the Fed has stopped buying mortgaged-backed securities, and the first-time home buyer tax credit will end in a few months.

Why, then, are we all still so nervous? Because the recession really isn't over, not for you and me. And, absent renewed stimulus -- for which there seems to be no political will -- we're screwed.

Here's a look six months in the future if the U.S. continues to follow its current economic course.