Saturday, October 02, 2010
In news that will irritate Democrats and Tea Partiers alike, it is increasingly likely that the Bush administration's primary contribution to stabilizing the financial crisis -- the Trouble Asset Relief Program, or "TARP" -- will in the end cost a tiny fraction of original estimates and may well turn a profit for the federal government. If the total tab is indeed less than $50 billion, it compares quite favorably to the $125 billion spent on the S&L crisis in the early '90s. Obviously, that does not dispose of the moral hazards and other long-term consequences of any "bailout," but it does make it much more difficult to attack the program on utilitarian grounds.
Of course, as liberal Steve Benen points out, the TARP has become so unpopular in this populist moment that nobody is going to rise to its defense. Except me. Shortcomings notwithstanding, I think the TARP saved us from catastrophe, and that history will eventually record that the leadership of Henry Paulson and Ben Bernanke in that moment of political paralysis -- Bush was a crippled duck, McCain was panicking, and Obama was playing to protect his lead -- as having saved the world from vastly more misery than it has in fact endured since the financial panic of 2008.
McCain was not panicking. He was playing to give Paulson his moment and his political cover with the Republicans in Congress, which, in retrospect, was clearly not the political benefit he thought it would be.
If TARP really did end up saving the financial system, that's really just the crowning irony of the 2008 campaign.
I can see the logic in bailing out the creditors, since the freeze in credit caused by the mortgage collapse was what screwed up the economy, and freeing up credit overall was and is neccessary to get it back on its feet.
What I objected to was the expansion of the TARP philosophy to every damn glitch and burp and hiccup, into a Democrat wet dream of statist interference, patronage, pork, and sheer pandering.
Hehe, that is delightful! The folks who think the idea is great but loath those who did it are going to be annoyed it worked, and those who oppose it on principal are annoyed it happened, no matter the result!
Wrong. Every dime allocated to TARP may be considered lost and gone. Anything that comes back from the banks is being immediately thrown back into the Federal furnace for vote-buying, and any "unspent" money is just unspent for the moment, the politicians will find some emergency bridge or highway or company in their district that needs the money more than we do. And they are going to do it fast, because after the election, there's going to be a little more resistance to the federal cash flood. I hope.
I fail to see how banning failure from the market place has averted any catastrophe, rather than simply creating an enormous one waiting to happen.
The government's interference, beginning with Paulson's wetting himself all over Capital Hill, has only added interference to any recovery. It's entirely likely that, absent this interference (including TARP), the downturn would have been sharper. It's nearly certain we'd be much further along in the recovery absent this interfeence.
You write as though the final chapter of TARP has been written: it has not. The primary dealer banks are trying to earn their way out of real insolvency and are only one crisis away from BK. There are monstrously large off balance sheet liabilities and even their currently recognized loan portfolios are in a massive nonperforming state...only hidden by their unwillingness to foreclose. Their latest ploy is to halt foreclosures while they 'review documentation issues'--on the heels of HAMP this is simply another attempt to forestall another wave of inventory hitting an already flooded market...with obvious price deterioration consequences.
The banks could have gotten along fine with the backdoor mechanism that they continue to use: zero percent loans from the Fed to loan money to the US Treasury at 2-3 percent. Unlimited free money used to bid up the stock market.
No, my friend, the TARP / bailout book is building up to the climax. This story is not over by a long shot.