Editore"s Note
Tilting at Windmills

Email Newsletter icon, E-mail Newsletter icon, Email List icon, E-mail List icon Sign up for Free News & Updates

October 1, 2010

NOT A BAD RETURN ON A COSTLY INVESTMENT.... Whether one approves of 2008's financial industry bailout or considers it the worst piece of legislation in American history, there's one thing we can all be very glad about: its price tag.

Even as voters rage and candidates put up ads against government bailouts, the reviled mother of them all -- the $700 billion lifeline to banks, insurance and auto companies -- will expire after Sunday at a fraction of that cost, and could conceivably earn taxpayers a profit.

A final accounting of the government's full range of interventions in the economy, including the bailouts of the mortgage finance giants Fannie Mae and Freddie Mac, is years off and will most likely remain controversial and potentially costly.

But the once-unthinkable possibility that the $700 billion Troubled Asset Relief Program could end up costing far less, or even nothing, became more likely on Thursday with the news that the government had negotiated a plan with the American International Group to begin repaying taxpayers.

Two years ago, the assumption among many was that these hundreds of billions of dollars would rescue Wall Street, but that we'd never see that money again. And yet, as of now, it appears likely that the entire initiative won't cost the American taxpayers a dime -- we might actually make money on the deal.

Of course, we almost certainly won't hear anyone from the administration boasting about these encouraging results, because public revulsion for TARP is unrivaled in our discourse. Indeed, the word "bailout" has managed to become synonymous with "evil," so much so that nearly every policy debate involves participants trying to figure out a way to characterize the other side's position as a "bailout" to someone.

Brian A. Bethune, the chief financial economist in the United States for IHS/Global Insight, has raised some criticisms about TARP and its structure, but he called the program over all "a tremendous success. Now obviously, they can't go out on the campaign trail and say that, because certainly, for a lot of voters, it's just not going to resonate." A former investment banker added that the industry rescue "is the best federal program of any real size to be despised by the public like this."

Matt Yglesias had an interesting take on this earlier, noting that it's "pretty remarkable" to think the bank bailout, hated though it may be, won't cost us anything.

Do you think letting the banks fail would have had zero disruptive impact on the economy? None whatsoever? What other programs can you name that garnered support from Nancy Pelosi and George W Bush, helped people millions of people, and had a negative cost to the government? And yet people think it's horrible, in part because the public sphere has utterly failed to defend it.

That's a problem, in part because the early days of TARP were a huge success for the public sphere.... It became a lost opportunity for ideological instruction. Instead it's become a moment of anti-instruction, which people think has demonstrated the lesson that the government consists of nothing but corrupt giveaways. It makes me sad. When it was first proposed, I didn't understand this issue correctly. But in the ensuing two years, I've learned more about it and improved my understanding. The public as a whole, however, as just gotten itself more confused.

Nevertheless, TARP expires this weekend, and going forward, the Treasury "can no longer commit money to new initiatives or recycle repayments to other purposes."

Steve Benen 4:15 PM Permalink | Trackbacks | Comments (15)

Bookmark and Share
 
Comments

Of course, we almost certainly won't hear anyone from the administration boasting about these encouraging results, because public revulsion for TARP is unrivaled in our discourse.

Well that and it was a Bush administration program;>

Posted by: martin on October 1, 2010 at 4:23 PM | PERMALINK

The AIG part is likely to cost us about $100 billion (see Barry Ritholtz) all by itself.

How, exactly, will we come out $100 billion ahead on the rest of TARP? That's the only way to break even.

Posted by: low-tech cyclist on October 1, 2010 at 4:25 PM | PERMALINK

Now I bet the polls will show that people know who initiated it. And they'll say the only reason it worked was because that dastardly Obama came along after it was put in place.

Posted by: Blue Girl on October 1, 2010 at 4:27 PM | PERMALINK

Now obviously, they can't go out on the campaign trail and say that, because certainly, for a lot of voters, it's just not going to resonate."

Because, obviously, we should just accept the ignorant prejudices of the mass without any effort at correcting the record. Obviously. Why would anyone even question it?

Posted by: Jon on October 1, 2010 at 4:29 PM | PERMALINK

I've always been pro-bailout. When the House initially rejected it, I felt genuine heartburn and weighed the pros and cons of mattress stuffing. Even if it did cost the full $700 billion, the economy would have lost trillions if banks had been allowed to keep failing at that rate.

"Populist outrage" on both sides over the TARP has always been a case of blaming the doctor rather than the cancer for the pain of chemotherapy. It's insane. Hopefully historians will have the courtesy of getting it right.

Posted by: Steve Simitzis on October 1, 2010 at 4:54 PM | PERMALINK

According to Yglesias' charts, we only put $80 Billion into AIG. Deals that sell off the profitable parts of the company are getting ready to settle. Yglesias breaks TARP down into 4 sections- banks, AIG, auto, and homeowners. Go see his charts. Banks will turn a profit. Overall, -$50 bil to +$20 bil is the likely outcome.

Posted by: Tim H on October 1, 2010 at 4:58 PM | PERMALINK

We should also through a kudoes to Elizabeth Warren whose vocal oversite of the program and efforts to keep as much of the dealings open and visible probably kept a lot really bad stuff from happening behind the scenes.

Unfortunately the $2 TRILLION or so the Fed laid out to buy up the really ugly debt on banks' books is still largely unaccounted for.

Posted by: thorin-1 on October 1, 2010 at 5:03 PM | PERMALINK

I have some doubts about the validity of this article as well as a similar one in the NYT's.

A few weeks ago, I read an article by zero hedge that the total bailout by the Fed and Treasury was over $15,000, 000,000,000.

Posted by: gh on October 1, 2010 at 5:15 PM | PERMALINK

Not to forget the "borrow at zero percent from the Fed, loan it out, pay back the government from the interest" bit.

Posted by: Forrest on October 1, 2010 at 6:02 PM | PERMALINK

I would advise the Obama Administration to make a public pronouncement praising the success of the TARP, but to emphasize that it was a Bush-Administration program, on which the Obama Administration simply followed through. This public relations strategy has the advantage of being largely true. Barack Obama should give a speech in which he praises George Bush, his treasury secretary, and all the Congresscritters repub and demo for having the guts to save the world economy, with legislation structured in such a way that the taxpayers stood a good chance of getting the money back. How many heads would explode on the wingnut side?

Posted by: troglodyte on October 1, 2010 at 6:50 PM | PERMALINK

According to Yglesias' charts, we only put $80 Billion into AIG. Deals that sell off the profitable parts of the company are getting ready to settle.

If it comes down to who am I going to trust, Ritholtz or Yglesias, I've got to go with Ritholtz. Yglesias is a smart guy, but he's a generalist. This is in Ritholtz' area of expertise. Deals that sell off the profitable parts of a company whose market cap is only $27B can't be all that valuable.

Posted by: low-tech cyclist on October 2, 2010 at 12:39 AM | PERMALINK

Two trillion in quantitative easing, the government spending almost 50% more than it takes in revenue to prop up the economy and the housing market so that the banks didn't go under and TARP could be repaid, but TARP, hey TARP made money so I guess the bail-out was okay.

Posted by: a on October 2, 2010 at 1:35 AM | PERMALINK

"If course, we almost certainly won't hear anyone from the administration boasting about these encouraging results, because public revulsion for TARP is unrivaled in our discourse. Indeed, the word "bailout" has managed to become synonymous with "evil," so much so that nearly every policy debate involves participants trying to figure out a way to characterize the other side's position as a "bailout" to someone."

Hey, if you love giving money away to someone who squandered it, by all means go write AIG a check and make yourself feel better.

Posted by: Sean Scallon on October 2, 2010 at 2:39 AM | PERMALINK

http://www.sourcewatch.org/index.php?title=Total_Wall_Street_Bailout_Cost

Posted by: Gimlet on October 2, 2010 at 9:36 AM | PERMALINK

I wonder how much of the TARP funds would have been repaid by this time, had the act not included those restrictions on executive compensation, which would be lifted only after the lent funds had been paid back?

Posted by: Nancy Irving on October 4, 2010 at 2:26 AM | PERMALINK




 

 

Read Jonathan Rowe remembrance and articles
Email Newsletter icon, E-mail Newsletter icon, Email List icon, E-mail List icon Sign up for Free News & Updates

Advertise in WM



buy from Amazon and
support the Monthly