dagblog - Comments for "No, TARP Was Not A Success"

My thoughts are late and may

Steve — Thu, 07 Oct 2010 00:45:59 +0000

In reply to No, TARP Was Not A Success

My thoughts are late and may overlap Dan's comment, but I wanted to correct a fact and add a thought or two:

First, the AIG numbers mentioned are just plain wrong. If you follow the link and read the associated comments, you'll see that. For example, the author includes in the "amount owed" billions of dollars in loans (the "Maiden Loans") which are backed by securities worth more than the loans. In other words, if AIG's market cap went to $0 tomorrow, we'd still get all of that money back, so it makes no sense to include that in the "$182 million owed." Suffice it to say that's not the only error, and the Treasury's numbers are indeed correct.

Further, I think it makes sense to split TARP into a couple of categories when discussing its outcome:

Banks (except AIG) - unquestionably profitable.
AIG - breakeven, maybe a small loss.
Automakers - probably a small loss.
Homeowners (mortgage modification programs) - unquestionable loss. In fact, TARP as a whole will likely be profitable but for this loss.

I'll simply echo Dan's comments with respect for the massive economic damage that would have resulted had the Bush administration and (mostly Democrats) in Congress not had the courage to hold their nose and pass elements #1 & #2. There is no doubt that people who were responsible for the disaster benefited, but that was a necessary price to pay for the catastrophe that was avoided (see studies by Mark Zandi and other independent economists estimating things like 16% unemployment in TARP's absence).

It's ironic that Tea Party populists blame Obama for those two items, when a) he had nothing to do with them, and b) history may well record that they were the most successful economic policies of our generation. At the same time, they don't seem as angry about #3 & #4, for which he was responsible, and for which the case was less defensible. It's also interesting to note that in the case of the automakers, shareholders were effectively wiped out, and bondholders were punished quite harshly, so it's difficult to argue that they benefited in the same way that bankers did. The automaker bailout also effectively used the US government's balance sheet to accomplish a leveraged buyout of GM by the autoworkers' union, which one would think would cheer progressives and infuriate the Tea Partiers. Oh well.

The other thing I find interesting is that press attention has focused on whether TARP was profitable, as opposed to whether it ultimately accomplished its objectives (aside from catastrophe averted - check!). TARP's success can't really be measured in terms of its profitability - it has to be measured in terms of whether it created a moral hazard that leaves the financial system vulnerable to another round of excessive risk-taking. The jury is out on that one - the resulting financial reform was better than nothing, but it left a lot on the table.

Obviously, I think more

stillidealistic — Sat, 02 Oct 2010 23:31:29 +0000

In reply to Ok, let's backtrack here a

Obviously, I think more highly of him than you do. And I have been paying attention to politics for a short amount of time, so I agree, I'm coming at this from the position of an innocent...I have a lot to learn.

If everything were as black and white as you portray it, I would just say, yep, I'm wrong. But I think it is all a little more complicated than that. For starters, the economists did not agree on what to do, and they still don't agree. It's hard to believe a situation is cut and dried, when there are intelligent, well thought of people pushing opposite agendas.

Secondly, blame whoever you want, but the biggest issue is "so where do we go from here?" I don't know what to do. I don't know how to help. I am pissed off, bummed out, and frustrated, but I haven't given up, and I still have the energy and enthusism to fight, but I don't know where to put it. I am open to suggestions.

Ok, let's backtrack here a

SleepinJeezus — Sat, 02 Oct 2010 19:29:55 +0000

In reply to Good ideas, both of you. But,

Ok, let's backtrack here a little bit and perhaps examine what you DON'T do if you are serious about fixing the problems we confront - even if you are the all-blessed Obama.

#1: You don't appoint Rahm Emanuel to be Chief of Staff. He was appointed for his ability to play the lobbyists' game, and it was appropriately perceived to be a surrender to politics-as-usual in a move that all but assured Obama would snatch defeat from the jaws of victory. The last two years have shown that perception to be quite accurately held.

#2: You keep the likes of Paulson and Summers and even Geithner as far away from the keys to the Treasury as you can.

#3: You don't make deals with the health insurance industry beforehand if you are serious about truly offering legitimate health care reform. You instead say something like "We're going to change the way Washington does business" and then proceed to do so by sticking them in the neck with the full support of the populist movement that brought you into office. Perhaps you come up short of single payer health care as part of legitimate political compromise, or perhaps you discover there is more widespread support for far-reaching reforms than you anticipated. But you damned sure serve notice to the lobbyists that they are not going to outright limit reforms to a degree that meets their approval as the first order of business.

#4. Ditto with Wall Street. (See #3)

Your difficulty, stilli, is in your own failure to see that Obama is not an unfortunate victim of circumstance here. Unfortunately, so many of the problems he confronts are of his own making as Rahm and others in Congress have pulled their punches in order to placate their owners. He could have leveraged his populist support to great ends toward reversing so much of the misery and backsliding caused by Reaganomics. He could easily have established that the Bush/Cheney abuses of Executive Power were far beyond what is acceptable in a democratic Republic. He could have easily marginalized the Republicans for the sinister incompetents that they are subsequent to all the failures of their policies that have occurred in the last twenty-plus years. And he could have run over Ben Nelson, and Lieberman, and Blanche Lincoln, and Landrieu, and the other Dem whores in Congress by simply showing them to be what they are instead of playing the game by their rules.

All of this could have been accomplished with the mandate he received from the electorate to enact "Change We Can Believe In." And he would have placed the Dems in great shape as they face this election. In fact, I even believe he could have co-opted much of the sturm and angst that has driven the Tea Party and thus have robbed Armey and Gingrich, et. al., of their access to this now-misguided populist force. Doubt any of it? Recall for yourself the feeling around the country on the eve of the election as Obama faced the rally in Grant Park, and then tell me what was the expectation among those who placed him in office? And then look what we got instead.

Obama has pulled his punches in deference to the monied interests that own him. He and the rest of the Palooka-Dems now find themselves flat on their back on the canvas, wondering what hit them. There are some among us, I suppose, who are prepared to mop their brow and cluck "Oh, you poor dear!" But there remains those of us who will continue to scream at them that, at last, it is time to stand up and fight, dammit!

Even though time is running out.

Good ideas, both of you. But,

stillidealistic — Sat, 02 Oct 2010 17:22:46 +0000

In reply to Very well considered, destor.

Good ideas, both of you. But, as far as I'm concerned, you can "insist" in one hand, and "you-know-what" in the other, and see which fills up faster...Insist is a lovely word. But that is all it is, a word.

I agree whole-heartedly that until the corporate/financial influence over our elected officials is eliminated, there is no way out of this. Where we disagree is whether or not it will happen. I know it sounds very defeatist coming from me, the optimistic one, but I believe with every fiber of my being that if it could be done, Obama would have done it.

I can hear y'all howling as you read that, but seriously. He made ME, someone who, by all demographics, and coming from a very dark place where politicians are concerned, should have run from him, believe again. If HE who was able to do that, could not get the repubs to join with the dems to work for the good of the country and common, every day people, instead of the good of the party, who POSSIBLY could?

Short of a civil war, I don't see the possible catylist. The entire congress would have to be thrown out and at the same time new rules enacted to keep the money out...The practical me just doesn't see it happening.

Creartivity is not the

Resistance — Sat, 02 Oct 2010 14:13:38 +0000

In reply to When wages rises, prices do

Creartivity is not the problem, It's who they serve, thats the problem.

Self serving survival of the fittest.

The golden rule: who ever has the gold; rules

Imagine your Obama, you’ve just won a mandate.

You realize the Country is faced with a major financial crisis, INHERITED from the previous Administration.

What ever should Obama do?

Hire Larry Summers and Tim Geithner? WT%

Were there any minutes taken in conference to show, the policies Larry Summers was promoting? Did it include a realistic view of consumer sentiment? or do we need to invoke the freedom of informatoion act.

The bankers got the bailout and we got Cash for clunkers, we got an $8,000.00 dollar tax credit for buying a house; that may have been bought prematurely, as home devaluations continue.

Cash for clunkers removed inexpensive cars from the market, the lower income folks would need.

Let them ride the bus; another head game? We’ll have to raise taxes to get more transportation..

Sucker the consumers further, playing head games.

Head games were the administrations secret weapon, to end the crisis?

My point is the bankers got the real substance and the people got manipulated. Which group is better off today under the financial leadership of Larry Summers.

Did Summers in his heart say “Consumers are so fickle, we can bring them around to do they’re part, with unfounded half truths, keep saying the economy is turning around, and the dummies will believe us.”

The problem as I see it. There is the REAL life and the fake.

The real life say’s don’t owe anybody a single thing and you’ll live free. The fake economy say’s borrow and consume, become enslaved.

People like Larry Summers who are corporate shills, love slavery.

Slavery = higher profits.

Why did Obama hire Summers? Did his Chief of staff recommend him? Was it cronyism to hire a Harvard professor?

Larry’s got his job and home, where’s ours

While the Obama administration attacks the base for being to smart, to see through the head games. We weren’t that stupid. We are still victims of your choices of advisors.

Who either can't get us out of this mess or won't

Cake to the banker class, crumbs to the second class

While the rich kids go to Harvard,

Heck of a job, Brown nose Larry

Arrggh. I just found this

we are stardust — Sat, 02 Oct 2010 11:49:55 +0000

In reply to I googled to try to find

Arrggh. I just found this John Talbot piece at Huffpo listing many, many other direct and indirect costs of the bailout, and comes up with a figure of $14.85 trillion. I haven't a clue about Talbot's accuracy or credibility, but it's a harsh list.

http://www.huffingtonpost.com/john-r-talbott/tarp-uncovered-the-real-c_b_746959.html

I googled to try to find

we are stardust — Sat, 02 Oct 2010 11:20:55 +0000

In reply to No, TARP Was Not A Success

I googled to try to find evidence of this, but couldn't: In an interview over a year ago, Elizabeth Warren stated that in her opinion, there wasn't ample evidennce that the economy would have collapsed without TARP. She didn't elaborate on what measures might have helped, though later she seemed to have favored writing down subprime loans. I wonder how Ted Kaufman will handle Warren's former job? He was an incredibly strong advocate for strong regulatory reform.

The other point you touched on, Destor, that isn't factored in enough to the 'did the bailouts actually make money' issue is the incredible degree to which joblessness, loss of pension equity, massive foreclosures, etc., negatively impacted the economy AND strained social safety nets and unemployment funds. These should be automatically factored in, shouldn't they? And the degree to which they will in the future, also. Without counting the peripheral costs, the figures wouldn't be true, the same way that the oil in the Gulf costs need to account for future health costs, shuttered businesses, etc., not just the immediate loss of production and cleanup.

The little I've read about the new model Joseph Stiglitz and Nicholas Sarkozy have been trying to develop for a new approach to measuring GDP, factroing in 'happiness' or contentment, and trust in the future interests me. I'm picturing the costs we've incurred as a population in fear, doubt about the future, free-floating anxiety, loss of trust in government, etc. concerning the ways TARP and the stimulus were handled. (I also think that the two should be kept separate in people's minds). Also the infrastructure and education investments that now go begging will have long-term deleterious effects for all of us.

The banks won't lend, people can't or won't spend, too many of us have create false boogeymen as 'the fault'; i.e., sub-prime borrowers who were too stupid to deserve their mortgages being written down, 'socialist' politicians who rescued the banks and GM, and wanted to bring back Glass-Steagall or nullify the CFMA, etc. That Americans are so pissed and frightened has enormous impact on the recovery (or not) in terms of investment in the future. Who will want to take out massive loans for college in the near future? As public schools suffer from decrease funding, more people are heading to private charter schools a la Arne Duncan's stupid corporate-influenced education plans, and so on.

I'm just saying (in far too many words) that the hidden costs of Too Big to Fail bailouts will become Too Big to Save for the American People.

The issue you raise, donal,

SleepinJeezus — Sat, 02 Oct 2010 10:32:10 +0000

In reply to Agree that it was a good

The issue you raise, donal, is definitely the REAL "elephant in the room." As "we" (ahem!) attempt to globalize the consumer-driven economy, the unsustainability of such an approach to economics become glaringly obvious. In this case, we actually have a whole science of economics that is fatally flawed, and yet it is the rulebook by which we all play.

I find myself advocating for changes within the present rules to introduce some degree of justice into the equation. Yet, like you, I'm uncomfortably aware that advocating for the continuation of this economic system at all is a fool's errand in the long run.

It's an interesting conundrum, and yet we can't even begin to discuss it in today's political environment without sparking knee-jerk condemnation involving charges of "socialism" and "anti-American radicals" and blah, blah, blah. Yet, it's a discussion that cannot be postponed much longer as we continue consuming non-renewable resources to fuel the required growth of our consumer economy.

I, too, very strongly

SleepinJeezus — Sat, 02 Oct 2010 10:21:17 +0000

In reply to Yes, I understand the part

I, too, very strongly supported the "bank bailout" (although I object to that revisionist term from the original "TARP"), as well as the stimulus plan (wanted it to be bigger) and the GM/Chrysler bailout. And all for the same reasons you have offered here.

What I abhor is the bait-and-switch that was pulled on TARP that allowed the bankers to be made whole while doing little or nothing to actually address the problems at the Main Street level. (See my comments below.) To Ghengis' point, above, we received collateral benefit from preventing the meltdown of Wall Street, but it was simply an accidental consequence of the money-grabbing plan to serve Wall Street as exercised. Sub-Prime Mortgages nevertheless remain as an intractable problem that could otherwise have been more effectively addressed given the amount of monies that were spent on this bailout.

Very well considered, destor.

SleepinJeezus — Sat, 02 Oct 2010 10:01:18 +0000

In reply to When wages rises, prices do

Very well considered, destor. Thanks for this.

You've done a great job iterating what I thought was the plan when Paulson wrote out his one page plan to secure the hundreds of billions in cash in Fall of 2008. It was all about purchasing toxic assets, which were identified then as sub-prime mortgages. (Most people had hardly ever heard of Credit Default Swaps and such at the time.) This is essentially what the taxpayer was led to believe he was supporting when these monies were dedicated to relief. It was a good plan that would have allowed for a "do over" as you call it; would have bought time to appropriately regulate the industry (including fixing "Too Big To Fail." Remember that?); and would have regenerated monies into the hands of the consumer to allow the recovery to take root in sustainable fashion.

Having secured the funding for this "Troubled Asset Relief Program," Paulson and Geithner instead steered funds toward propping up AIG's gambling obligations at parity - dollar for dollar. This, alone, resulted in a $12.9 BILLION DOLLAR blessing to Goldman Sachs, who were wholly reimbursed in this amount for their gambling debts that had been placed with AIG and that were not (and never could have been!) secured. Then, other monies were used to buy banks, themselves, rather than deal with purchasing the toxic assets in any manner such as you so elegantly explain.

The banks and the casinos were stabilized and held harmless for their excesses that led to the meltdown in the financial industry. Our Treasury was raided in a fashion not seen outside Defense Department Budget parameters. And virtually NOTHING was done to relieve the underlying sub-prime mortgages that have decimated the consumer economy. (Oh, and "Too Big To Fail?" Just imagine a hiccup in GS's earnings, and consider how quickly we'll be called upon to do it all over again.)

Most importantly, from the political perspective, the pipeline from Wall Street to the campaign coffers of both the Dems and Repubs was kept intact. Homeowners can fall back on that to gain their sustenance, I suppose, as they continue losing their homes in foreclosure at record pace, two years into this crisis.

If there was any justice to be had in this world gone mad, someone would be in prison by now - and the indictments for conflict-of-interest and grand larceny would reach at least as far as the Treasury Departments of both the Bush and Obama White House.

Instead, we have politicians wondering why there is such an "enthusiasm gap" among the left - and why there is such widespread (if ill-directed) tea-party anger against a government that is perceived to be incapable of serving the people.

And so the short answer to stilli's question about how we make this version of our economy work for everyone is that we must all become Wall Street Bankers. Incredibly, no one else really matters to those in charge. I used to think such statements were hyperbole. Then, I lived through the "Troubled Asset Relief Program," and witnessed winners and losers play out like a horror film with result that, two years into this, we still have a domestic economy that is dead in the water with no wind at its back.