Caught in a TARP

I’m going to put on my corporatist O-bot hat and say that I agree completely mostly with Steve Benen and newly minted neo-liberal Matt Yglesias here:

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.

It didn’t cost $700 billion either, in the end, it’s pretty close to break even. Yeah, they should have settled AIG’s credit default swaps for 60 cents on the dollar (or something like that), but it wasn’t a pointless $700 billion give-away to fat cat bankstas.

Update. I mean to add this proviso:

So when folks like Yglesias or Benen argue that the banking portion of the bailout cost us nothing or made us money they should probably be subtracting a large portion of whatever the AIG losses end up being from the amount of profit the US makes on the loans, warrants, etc.






129 replies
  1. 1
    MikeJ says:

    Tut tut, changing the title so as not to piss off Taibbi-bots.

  2. 2

    I was pleasantly surprised to read that TARP is not costing that much, something like 60 billion and the AIG agreement had not been worked out at that point.

    Of course the Administration saved Capitalism-In-America. And those turkeys call Obama a Marxist.

    Phooey.

  3. 3
    DougJ is the business and economics editor for Balloon Juice. says:

    @MikeJ:

    I think I used the $26 trillion title before.

  4. 4
    Corner Stone says:

    DougJ, I think the argument is a little simplistic here.
    First, TARP could’ve been handled a little more efficiently, with quite a bit more oversight and/or penalties.
    Second, the banks got bigger for the most part. They took money at next to 0% interest, loaned it out at 3% or higher and made a risk free fortune. They also used the TARP money to swallow smaller regional banks.
    IOW, I think this is a simplistic and/or a disingenuous one. Either way it doesn’t capture what actually happened with TARP, IMO.

    edited the first sentence a lil.

  5. 5
    different church-lady says:

    Look, here’s how the conversation goes:

    TEA-NUT: AN’ OBAMA BAILED OUT THE BIG CROOKED BANKS!

    INHABITANT OF PLANET EARTH (IOPE): Okay, first off, Obama wasn’t even elected yet, and second…

    TEA-NUT: THEY SHOULD HAVE LET ‘EM ALL FAIL!

    IOPE: Uhh, look, do you honestly think allowing the entire financial structure of the country to fail in one catastrophic implosion would have been the right thing to do?

    TEA-NUT: (Starts speaking in tongues, with the word “socialism” occasionally recognizable).

    In other words, people who talk about the ‘big bank bailouts’ have no clue what they are actually talking about — it’s a code phrase, just like ‘socialist’ and ‘freedom’ and ‘free market’. You hear the code phrase and you’re supposed to respond the correct emotional way, and then everyone feels good about the fact that they know the code and they’re in the club.

    This is more important than reality. At least, that is one possible theory for it…

    POSTSCRIPT: Upon reflection, I shouldn’t have singled out tea-nuts — there’s plenty of people on the left who think it was a big give-away too.

  6. 6
    taylormattd says:

    @Corner Stone: What’s simplistic is to scream bloody murder on a near daily basis about CORPORATE FAT CATS STEALING NEARLY A TRILLION DOLLARS.

  7. 7
    DougJ is the business and economics editor for Balloon Juice. says:

    @Corner Stone:

    To my knowledge, the TARP loans were not interest free. The interest may have been low but every account I’ve read says they were repaid with interest.

  8. 8
    kdaug says:

    @Corner Stone: And don’t forget the bonuses they were granting themselves while unemployment was hitting 9.5%. That’s what REALLY pissed people off. Had they forgone their bonuses for a year, the administration would have had a hell of a lot of an easier time selling the program (even though TARP 1 and TARP 2 were both passed under Bush).

  9. 9
    different church-lady says:

    @taylormattd: Eggs-act-lee. Which is what my post at #5 (I hope, it’s awaiting moderation, supposedly) was all about.

    Apparently intellectual laziness gives certain kinds of people a great deal of pleasure, and they take that option at every opportunity they can.

  10. 10
    numbskull says:

    …the administration would have had a hell of a lot of an easier time selling the program…

    And why would the Wall Street scum and bankster scum want to help THIS administration?

  11. 11
    Martin says:

    Here’s the best breakdown that I’ve found so far.

    Recipients: 884
    Total Committed: $600,454,057,133
    Total Disbursed: $547,275,588,243
    Total Returned: $201,159,654,009

    It’ll end up costing us some. AIG will pay back some of theirs. Freddy and Fanny bailouts will cost quite a lot. It’ll take ages for GM to pay back their $44B.

    The list above includes the TARP $700B (which was reduced to $475B in the fin reg legislation) and also the separate Freddy/Fanny bailout which is unlimited in cap. It sets the value of assets that we hold at $0 (which, ironically, is half the reason we got into this mess) so while we own a majority stake in GM still, it’s valued at zero in the chart. The degree to which we turn profits off of these investments is unknown, but they’ll certainly wind up being worth more than $0 when we sell them, so that gap from disbursed to returned will only shrink.

  12. 12
    Stillwater says:

    @DougJ is the business and economics editor for Balloon Juice.: I think I used the $26 trillion title before.

    So Taibbi makes a few McStakes in the numberz (per article). It isn’t like he’s the business and economics editor for a major political blog, fer chrissakes.

  13. 13

    Off topic but this just in:

    Tenn. Man Charged With Threat To Ohio U.S. Rep
    Cleveland, Tenn., Man Charged With Making Arson Threat By Phone

    NASHVILLE, Tenn. — A Tennessee man has been charged with threatening to burn down the home of an Ohio congressman during the health care debate.

    Prosecutors in Ohio say 40-year-old James Schmidlin, of Cleveland, Tenn., was charged with making an arson threat by phone against Democratic U.S. Rep. John Boccieri. The federal indictment was unsealed Friday in Cleveland, Ohio.

    The charges say the threatening call was made around March 4 amid the congressional debate on health care. Boccieri was one of eight Democrats who switched positions and voted for the president’s proposal.

    At a Friday court hearing in Chattanooga, Tenn., a magistrate judge agreed to release Schmidlin on bond.

    Schmidlin did not enter a plea. His attorney, Anthony Martinez, labeled the call a “stupid, dumb mistake.”

  14. 14
    jl says:

    The cash is not the total cost of TARP. If one believes that TARP was an ineffective response to the financial crisis, then the continuing depressive effects of an inadequate resolution to the financial crisis on the real economy is also a cost.

    (Reminder to those who have lost track: the real economy consists of real goods and services which we use in daily life. For example, food, clothing, shelter, water, education, health care. Often these real goods and services involve jobs actually doing something useful for people, or making stuff.)

    Having the cash back is nice, but it is not the total cost

    As for Yglesias:

    “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.”

    [emphasis added]

    This Yglesias fellow is really going whole hog on his new official neoliberal stance, ain’t he?

    Will he do a public repentance and recantation of his previous incorrect thought?

    I thought Yglesias promoted his keen philosophical education, which he would use to pick apart subtle but profound logical inconsistencies, category errors and hidden paradoxes in civic debates?

    But, to find a blog marketing niche, he has decided to become a ‘neoliberal’, which so far, consists of superficial slams of government programs and collective decision making in his posts. At least when he takes enough time to write a comprehensible post, which is less and less frequent.

    Of course, neoliberalism stands up to all sorts of logical and philosophical scrutiny, so I guess if he needs a schtick, that would be one to choose, right? (note: snark)

    What has a better ring ‘Matt Kaus’ or ‘Mickey Yglesias’?

  15. 15
    cyntax says:

    I think a lot of people really expected that the “too big to fail” banks would get broken up. And when they didn’t, it looked like the government was bending over backward for them–which wasn’t an unrealistic perception–at the expense of Main Street. Not hard to see why the optics on this one didn’t look good.

  16. 16
    RodeoBob says:

    Do you think letting the banks fail would have had zero disruptive impact on the economy? None whatsoever?

    I love the smell of strawmen in the morning!
    Seriously, has anyone, anywhere in this debate said “let the banks fall! It won’t have any effect on the economy! Let the banks fail and crash and burn because it will only hurt the bankers!”

    No. That is not why people were sharpening pitchforks and wrapping torches. No one objected on the grounds that it was economically unnecessary.

    And yet people think it’s horrible, in part because the pubic sphere has utterly failed to defend it.

    People think it’s horrible because it’s a perfect example of a moral hazard. A-hole banksters create a huge house of cards, pay themselves huge bonuses, and leave other people holding the bag. And instead of suffering any long-term consequences, they’re allowed to stay in business, grow larger, and do the same things that created this crisis all over again, but on an even bigger scale.

    People didn’t object to the bailouts because of the cost, they object to the underlying concept of bailing out the banksters. How do you miss so large a concept as this?

  17. 17
    Chris says:

    ranter: “TARP was so horrible! Trillions of dollars wasted! This proves that Obama is a sociomarxiradicislamist!”

    observer: “Actually, the government broken even on TARP.”

    ranter: “TARP had nothing to do with Obama! It was all the Bush administration! It was a great idea! And Obama wants to shut it down now! This proves that Obama is a sociomarxiradicislamicist!”

  18. 18
    Martin says:

    @DougJ is the business and economics editor for Balloon Juice.: They weren’t loans. They were asset purchases. Basically, in exchange for giving BofA so many dollars, we were issued so many shares of preferred stock. What they are doing in repaying the Treasury is buying back the stock. The amount that we profit on that exchange varies by company.

    One of the big concerns when TARP was proposed was whether the banks would ever pay it back. The stock gave the federal government non-voting ownership of a portion of the company. That was a relatively bold thing to do, and though it helped spawn untold screams of soçialism, that Obama wanted the government to buy out private enterprise, it gave the Feds some kind of assurance that the taxpayer wouldn’t get totally fucked.

  19. 19
    agrippa says:

    It could have been handled better. But, it needed to be done.
    The banks are still holding a lot of “toxic assets”. Assets that are not assets; but, are, in fact, virtually un collectable debts.

    I am the ‘bot’ of no one; sometimes Elmer gets it right; sometimes bubba gets right. After all, a broken clock gives right time twice a day. These banks are not going away; there will be no nationalization and no one is going to be prosecuted.

    The question now: has anyone learned anything about risk management? And, are the regulations strong enough?

  20. 20
    JenJen says:

    It didn’t cost $700 billion either, in the end, it’s pretty close to break even.

    Oh, you’re whistling past the graveyard, DougJ! Or at least that’s what Joe Scarborough has been telling me all week (with extra added Peggy Noonan bonus today!!).

    Keep Calm and Carry On. That’s the answer to everything, don’t cha know?

  21. 21
    Sentient Puddle says:

    @RodeoBob:

    Seriously, has anyone, anywhere in this debate said “let the banks fall! It won’t have any effect on the economy! Let the banks fail and crash and burn because it will only hurt the bankers!”

    Yes. Republicans, most vocally. Also, those on the left who get their economics from HuffPo.

  22. 22
    pharniel says:

    caldulated risk and the big picture broke this out yesterday.

    yha.

    not even close to paying us back.

    largest transfer of public wealth to private individuals….

  23. 23
    Omnes Omnibus says:

    Thread needs more FYC.

  24. 24
    Ailuridae says:

    That TARP worked out pretty well isn’t really in dispute. The issue is whether those same resources (or far fewer resources) could have been used to the same effect. I also don’t think there is much disputing that fact. But for a program that starting under a Republican president its easily the most effective thing since Poppy and Cheney trimmed some of the military largess. So I guess that’s something.

    And TARP without the subsequent FinReg bill (which like much of the Obama administration’s achievements is quite good but not great) would have been a disaster.

    I also have a lot of sympathy for those banks just under the too big to fail size who were forced to take TARP money despite not being at any risk (like my own bank, TCF, which simply never entered into sub-prime) but then as banks failed weren’t on the FDIC’s short list to take them over. The FDIC has become a little better about this as of late (when Giannoulias’ and other smaller banks failed this summer MB took over rather than Chase) but when the initial big failures like WaMu took place they rewarded companies like Chase who themselves engaged in very high-risk practices before the bailout. The logic for this was apparently that they weren’t run as badly as Citi or BoA.

  25. 25
    jl says:

    For more hating on Yglesias, which is slightly off topic, I admit. If I want to read a good neoliberal analysis on the logic and data of economics and social policy, why not read Krugman, Stiglitz, or De Long, or Baker, or Yves Smith, or Andrew Gellman, or James Heckman, a more than dozen other people who actually know what they are talking about?

    Some one needs to have a sit down talk with that Yglesias fellow.

  26. 26

    @Chris:

    Chris nailed it. We can’t win for losing.

    Er, “loosing.”

  27. 27
    Omnes Omnibus says:

    Why is my post in moderation? One link. To YouTube. FYWP

  28. 28
    different church-lady says:

    @RodeoBob:

    Seriously, has anyone, anywhere in this debate said “let the banks fall! It won’t have any effect on the economy! Let the banks fail and crash and burn because it will only hurt the bankers!”

    Yes, I’ve seen it plenty of times. Admittedly, it was always from semi-anonymous imbeciles in the comments section of a newspaper’s website, or in social chatrooms where it was completely and utterly off-topic, but yes, I’ve seen it.

  29. 29
    catclub says:

    @DougJ is the business and economics editor for Balloon Juice.:

    I am pretty sure poster is referrring to the FED window, which was opened at essentially zero interest.
    Plus, JP Morgan and GS suddenly ‘became’ banks that had access to the FED window.
    (Those giveaways (still continuing – who knows!) were never calculated as parts of the cost of TARP.)

  30. 30
    Corner Stone says:

    @taylormattd:

    What’s simplistic is to scream bloody murder on a near daily basis about CORPORATE FAT CATS STEALING NEARLY A TRILLION DOLLARS.

    What does this mean?

  31. 31
    Stillwater says:

    @Corner Stone: @DougJ is the business and economics editor for Balloon Juice.:

    Couldn’t you both be right? TARP 1 went out under Bush with zero oversight, closed books and what was perceived at the time to be a straight bailout. TARP 2 went out under Obama, with more oversight, interest charged on loans, somewhat open books, and accountability for repayment.

    DougJ: Is there any evidence that the Bush TARP funds were repayed with interest?

  32. 32
    Uncle Clarence Thomas says:

    I don’ t understand why the little people don’t agree with President Obama that True Capitalism requires socializing the losses of incompetent, dishonest businessmen and then privatizing the record-breaking profits given to them from taxpayer dollars.

  33. 33
  34. 34
    Erik Vanderhoff says:

    /co-sign

  35. 35

    We might also recall that TARP was orchestrated by Hank Paulson, who happened to be Treasury Secretary under a previous occupant of the WH. Hmmm, wonder who that was, and what possible reasons that administration could give for opening the candy store to the bankers?

  36. 36
    Martin says:

    @catclub: Except that we turn a profit on the Fed. $45B last year. Even though the interest rates are low, the volume of borrowing is high right now, which offsets a lot of the lost interest revenue.

    So the question is really whether we’re better off with a low interest rate returned to the Fed or whether we’re better off with the preferred shares from under TARP (given that those Fed loans were generally used to pay off TARP). That’s a coinflip, I think.

    Most disappointing to me out of finreg was that the banks weren’t forced to break up over some kind of schedule. That we still have institutions vastly larger than our insurance system (FDIC, etc.) to cover is completely irresponsible. The banks should have been given a formula – this is the size of our insurance pools, we expect to be able to cover x% of outstanding account balances from this pool in a given period, you as a single institution exceed that number of balances should you fail. You have a choice – break up into smaller banks or find a way to dump the necessary amount of money into the insurance pool to ensure that no single institution can wipe it out. Nothing political about it – it’s a formula anyone could follow and predict where they stand, and the banks get the choice of whether to stay large and provide additional funding to the insurance system, or to avoid that and break up.

  37. 37
    Zifnab says:

    @numbskull:

    And why would the Wall Street scum and bankster scum want to help THIS administration?

    Because even when he’s a Democrat, it’s rarely a good idea to piss all over the President.

    Besides, we see a crisis like this every decade or so. While all the banksters are laughing into their sleeves about getting a trillion dollar bailout handed to them by the party they dislike and using said bailout to pay off lobbyists and fund campaigns for politicians they love, perhaps poisoning the well on the very idea of another bank bailout isn’t the most wise long term strategy.

    When the next financial crisis hits – and it will, because we’ve barely done a thing to clean up this first mess, and the banks have already gone right back to their old tricks – where will BoA and Goldman Sachs and Citigroup be, exactly?

    Who is really going to be holding the bag when the bottom falls out of the market again in five years, or two?

    The banksters are still holding a whole mess of paper assets. And they’ve spent the last two years pissing on every populist they can aim their dicks at.

    I mean, they’re practically begging for a Karmic bitch slap here.

  38. 38
    Ailuridae says:

    I also think liberals/progressives are being pretty naive about how much of the objection to TARP is really about the automotive rescue and its filthy union workers. I don’t want to use dog whistle too broadly but that’s what is outraging wingnuts in my family.

    But the auto bailout is going to end up coming in right around 20B in total. Without it the entire automotive industry would have simply stopped including those foreign automakers that teabaggers love so much. And this was known at the time which is why you didn’t see a single automaker with plants in the US objecting to the plan.

    But its really just an issue of innumeracy and not understanding how big the US economy and federal budget is. People can’t wrap their heads around the idea that the US government gives more money in direct subsidies* to Real Murkan farmers every year (right around 20B) than it took to save the US auto industry.

    *Of course indirect farm subsidies are likely a full order of magnitude greater.

  39. 39
    Corner Stone says:

    @Stillwater: I said “near 0%” which has been conveniently misconstrued as 0%, or no interest.
    Point being, they got cheap money and loaned it back out at a higher rate, essentially risk free.

  40. 40

    Let’s see, TARP worked out real well for the banks, for the public, not so much – other than being good for the banks. A banking crash would have had disasterous effects, no doubt, but when people see bankers getting richer off their backs and nothing headed their way they have a tendency to get pissed. Their payback has been the financial reform bill, pretty weak tea in a broken economy. Is there something unreasonable in them seeing the rich as served and themselves as screwed?

  41. 41
    Martin says:

    @Uncle Clarence Thomas: Except that we didn’t socialize the losses of the private sector in first order terms – they’re still on the hook for it. The only group that isn’t is Freddy/Fanny who were these bizarro public/private hybrids, but were fully backed by the federal government. The only thing the taxpayers will ultimately be on the hook for are the bailouts to the pubic entities.

    There’s the issue of the opportunity cost of the TARP money as a second order cost and there’s almost certainly a real cost there, but I don’t think it’s a particularly significant one. The biggest cost is probably a political one – if Democrats get voted out over all of this, that’s probably what will cost the public the most in real dollars. But nobody cares about that – especially among those screaming most loudly about it.

  42. 42
    Ailuridae says:

    @jl:

    Not to be a dick but the describing the first four men you listed there as neoliberals borders on libel.

    http://en.wikipedia.org/wiki/Neoliberalism

    Stigliitz particularly is probably the most articulate non-crazy critic of neo-liberalism alive.

  43. 43
    slag says:

    I gotta defer to The Quiet Coup on this one. I agree that TARP had to be done. I also think it sucks that TARP had to be done. I don’t in any way hold Obama responsible for it, but I reserve the right to be pissed off by plutocracy when I see it.

    If TARP is in any way dragging down Obama’s numbers, that’s dumb and shortsighted. But it doesn’t necessarily follow that TARP itself should be highly approved of because, quite frankly, it should never have been required. It was doing the best you could with the circumstances you were given.

    I give TARP a break-even even if we lose a little cash on the deal just because we were already over a barrel and had no other serious options.

  44. 44
    Martin says:

    @Chuck Butcher:

    Is there something unreasonable in them seeing the rich as served and themselves as screwed?

    No, except the same public is just as likely to be protecting the rich by opposing things like the Bush tax cuts and the estate tax.

    The problem is the people screaming most loudly about TARP are also screaming the most loudly about the prospect of the rich being taxed. If you’re trying to work for the public, how do you resolve that?

  45. 45
    Mnemosyne says:

    @kdaug:

    And don’t forget the bonuses they were granting themselves while unemployment was hitting 9.5%. That’s what REALLY pissed people off.

    That’s really more to the point. If the banksters had pretended for even a nanosecond to be grateful for their bailout and not immediately accepted it as their due (or, really, not quite enough to be their due, but they would grudgingly accept it as long as we knew that they were condescending to us by even taking the money), it wouldn’t have gotten nearly as ugly.

    But I think Ailuridae is right, too — some people conflate the bank bailout and the auto company bailout and they’re so pissed off about losing that chance to wreck a powerful union that they spread the anger out to the bank bailout as well.

  46. 46
    Martin says:

    @Corner Stone:

    Point being, they got cheap money and loaned it back out at a higher rate, essentially risk free.

    What do you think banks ARE? They’re institutions that get cheap money and loan it back out at a higher rate. That’s the fucking definition of a bank!

  47. 47

    @Martin:
    Maybe you need to take a closer look at what they’re doing with the money they’re getting essentially free.

  48. 48
    jl says:

    @Ailuridae: You are not being a dick, you are correct. Thanks.

    I meant ‘neoliberal’ in the sense that Yglesias seems to using the term.

    You are right, neoliberal as defined in Wikipedia article doesn’t have much to do with the people I mentioned.

    I should have introduced Ygelsias’ (an my confusion) into this thread.

  49. 49
    Ailuridae says:

    @Martin:

    You were much more polite about that than I would have been.

  50. 50
    Uncle Clarence Thomas says:

    @Martin:

    My comment was not restricted to the TARP program.

  51. 51
    ChrisNYC says:

    @pharniel: Can you explain Ritholtz’ argument to me? I have read it and re-read it what I’m getting is that he thinks the value of AIG common is (or should be or will be?) nearing zero so the conversion of preferred to common (for later sale) is not “paying back”?

  52. 52
    Corner Stone says:

    @Martin:

    What do you think banks ARE? They’re institutions that get cheap money and loan it back out at a higher rate. That’s the fucking definition of a bank!

    Correct me if I am wrong, but I always thought banks paid low interest to their customers to keep savings accounts there, then took money they were accountable for and loaned it out to healthy risk at a higher premium and pocketed the difference.
    And yes, they’ve had the overnight window and a few other gimmicks to tide them over depending on circumstances.
    But what they received from the Fed was essentially unaccountable money at next to nothing. They then basically printed their own money by loaning that “free” money out.
    Do you see it differently?

  53. 53

    The bailout didn’t gall me as much as:

    a.) the attitude of the people receiving it, who promptly went back to business as usual: screwing their customers and taking bonuses.

    b.) The government NOT using money to bailout struggling home owners, or passing cramdown, or something that would neutralize the bad debt that individuals had.

  54. 54
    Ailuridae says:

    @pharniel:

    If you read that post by Ritholtz please make a point to also read the comments especially Kid Dynamite.

    FWIW, I think its a little dishonest to saw they made money on the banking part of TARP while ignoring the fact that if AIG had gone belly up in 2010 (post FinReg) a whole lot of banks who survived and are now profitable would have come tumbling down as well. The government’s decision to honor AIG’s contracts with “banks” is basically a stealth bailout to the banking industry. How much of the AIG bailout is essentially these payments to banks is probably a point where reasonable people can differ but I don’t think anyone would suggest that it is less than 75%. A financial accountant can probably give a more exact figure.

    So when folks like Yglesias or Benen argue that the banking portion of the bailout cost us nothing or made us money they should probably be subtracting a large portion of whatever the AIG losses end up being from the amount of profit the US makes on the loans, warrants, etc.

  55. 55
    cmorenc says:

    The problem with TARP was that it set a deep, lasting public perception that the very FIRST substantive thing out of the box the Obama Administration did was to take care to bail out Wall Street grifters from difficulty FIRST on immensely less demanding terms than the financiers deserved, and by comparison seemed much less competent or determined to craft measures that would effectively relieve economic stress on ordinary people. The AIG bonuses episode was an absolute disaster, both substantively and in terms of public perception. There was Timothy Geithner, the public face of the Administration’s policy toward Wall Street, shrugging his shoulders saying there was nothing they could do to forcibly prevent AIG from giving out the bonuses (and giving off the vibe that privately, he believed that it would be wrong to try to do so). And yet, the Administration was utterly inept at crafting a measure or cajoling Congress (despite huge democratic majorities) into any effective relief for homeowners who were underwater on their mortgages.

    IT DOESN’T MATTER that the net financial cost may have worked out to be little a couple of years later, the political damage was immense and it was THAT which gave the GOP the initial opening to gain enough leverage to mount effective opposition to health care reform and stiffen up against agreeing to any compromises. To be sure, the fecklessness and corporate corruption and sheer timidity of far too many democratic legislators did lots of damage along the way too during the health care reform process, but it was with regard to early dealings with Wall Street compared to Main Street that the Obama Administration badly got off on the wrong foot politically.

    Why didn’t Obama INSIST that the financial sector willingly sign on-board to financial reform legislation while he had them tied to the rocks, about to drown out of their gilded Central Park townhouses?

  56. 56
    Brien Jackson says:

    @cmorenc:

    So the problem with an ultimately effective and relatively low cost policy is that the Republican Party is so cravenly dishonest that they tried to blame the new Democratic administration for something that was passed with Republican support and designed by a Republican administration, that the American people are by and large dumb enough to fall for it, and this means…something or other.

    Alright then. Who’s got the whiskey?

  57. 57
    Jordan says:

    How soon we forget.

    Backing $700 billion worth of bad investments that would’ve paid out ?? percent less in a state of nature isn’t a give-away? Yes the bankers will buy back their stock, but the net effect for them is a 100% payout on half a decade’s worth of bad deals and they’re back to business as usual.

    But of course TARP is just the tip of the iceberg. Does anybody remember the Fed backstopping all those toxic assets? Treasury buying up MBS’s? To quote a confrere over on The Forvm:

    The $2 trillion from the Fed + the extra $1.2 trillion in Treasury buys of MBS’s is still the real giveaway.

    When all is said & done the US Gov’t will have underwritten or outright bought $2.9 trillion worth of toxic assets, covering 100% of the nominal value. Market value, of course, would be hundreds of billions south of that number.

  58. 58
    Observer says:

    I’m calling b.s. on this Doug.

    TARP is a success because it won’t lose money? That’s not the criteria to judge it by nor was it the rationale proffered to having to do it.

    If you want to list what you think are the top 3 or 5 reasons for TARP and then indicate how TARP accomplished them, then sure, there might be an argument to have.

    But this line of “TARP didn’t cost us money so therefore it’s a success” is b.s. plain and simple.

    As an example, one of the primary goals for TARP was to improve liquidity so loans could still flow. But TARP never accomplished this. The lack of liquidity has massively negatively impacted the economy and is a major reason all forecasts of unemployment are way below actual experience.

  59. 59

    @RodeoBob:

    Economically unnecessary?

    When all this happened I was working at a company with a couple of billion under management — which is to say, small enough to fail — and our brass-balled risk management actuaries were literally shaking with fear.

    They saw the investment banks and AIG and trillions in bonds (insured by AIG) lined up and, as our Chief Risk Management Officer said, the whole banking system on the verge of collapse. Rock-ribbed non-interventionist Republicans all, when Congress initially voted against TARP they went into a meeting where everyone sat silent for an hour. Smart and aggressive, not one of them had anything to say. The system they believed in more than anything in the world was dying in front of them.

    They knew: without a huge infusion of liquidity, there would be no market for debt-based assets, which means their current market value is zero, which means every financial institution subject to mark-to-market accounting rules would be insolvent and go out of business. That’s every single bank. That’s life insurance and annuities and pension funds. The most conservative investments people can make, all gone.

    The bailout was absolutely necessary. It saved every bank and every pension fund and every insurance company. If the banks and pension funds and other money managers subject to mark-to-market accounting rules had gone down it would have been the end of credit in the United States for a decade or more. It would have been, literally, another Great Depression.

    You want to quibble that it might have been more efficiently handled? Fine. Quibble. But the idea that capitalism would have been better served by letting capitalism self-destruct is just flat wrong. The bailouts saved capitalism, pure and simple.

  60. 60
    we can be heroes says:

    The term Neoliberalism is being used here (and elsewhere lately) in ways that confuse its meaning. This is what it means:
    http://en.wikipedia.org/wiki/Neoliberalism

    Let’s keep our terms straight people; political speech is muddled enough as it is.

  61. 61
    TheF79 says:

    It’s important to distinguish between the efficiency effects of TARP and the distributional effects. When people talk about TARP “not costing us much,” they’re referring to the efficiency aspect of it – the total cost of resources expended to prevent massive macroeconomic implosion was small. The distributional consequence was that we had to pay off the ‘too-big-to-fail’ assholes who created the problem in the first place – while at the same time those caught up in the whirlwind who were ‘too-small-to-save’ got boned. I think one can be happy about the former (efficiency) and pissed about the latter (distribution).

  62. 62
    Justin Morton says:

    Once again. Dougj proves he doesn’t really know what he’s talking about. I’ll get my Econ info from Econ bloggers, thank you very much.

  63. 63
    Malron says:

    Doug, just so you know:

    After spending two years claiming TARP was all about this supposed $700 billion giveaway to the bankstas, when you point out that they didn’t actually give away $700 billion we will politely pooh-pooh your assertion and claim TARP was actually about something else you haven’t officially debunked yet. As Jon Stewart says, when the evidence doesn’t fit your narrative, you change the evidence.

    Don’t you just love the maturity of 21st century discourse?

  64. 64
    Corner Stone says:

    @Tom Johnson: I think you need to read RodeoBob’s post again amigo.

  65. 65
    MikeJ says:

    @we can be heroes: I think somebody heard a gorwn up say it once and thought it sounded badass to call somebody that.

  66. 66
    Mnemosyne says:

    @RodeoBob:

    People didn’t object to the bailouts because of the cost, they object to the underlying concept of bailing out the banksters. How do you miss so large a concept as this?

    And the alternative was … ?

    That’s kind of the point here: people say they object to the “concept” of bailing out the banksters, but they never seem to say what the practical alternative was to that bailout. What was the government supposed to do if they didn’t do a bailout?

  67. 67
    John Bird says:

    Oh, I was fully in favor of the bailouts and giving the bankers everything they asked for, because effectively what was happening was the banks were holding a gun to America’s head and saying “UH OH MAN FINGER’S GETTING TWITCHY HERE”

    We shouldn’t have worried about getting that money back UNTIL mid-2008 or so, you know, when we nationalized all the big banks and sent all those fuckers to jail. On Earth-B, where the right things happened.

  68. 68
    Mnemosyne says:

    @John Bird:

    I still haven’t decided if the banksters were Sonny or Sal.

  69. 69

    @Mnemosyne: Bailing out the banks and forcing real systemic changes down their throats.

    Or line them all up against the nearest wall… or just put them in stocks for a few weeks and let people hurl rotten fruit and/or feces at them.

    Also, as above, do something to help out individuals on the bottom of the credit food chain.

  70. 70
    Corner Stone says:

    @Corner Stone: Hey Martin. I’m waiting for you to tell me this isn’t the definition of a bank.

  71. 71
    Mnemosyne says:

    @Comrade Dread:

    Bailing out the banks and forcing real systemic changes down their throats.

    Because that’s what the Bush administration was all about — forcing real systemic change on the banks when they set up TARP. You do remember that TARP is a Bush program, right?

    Or line them all up against the nearest wall… or just put them in stocks for a few weeks and let people hurl rotten fruit and/or feces at them.

    I was asking for actual realistic things that could have been done. It was illegal to nationalize the banks, so what was your back-up plan?

    Also, as above, do something to help out individuals on the bottom of the credit food chain.

    As I’ve mentioned before, I have people here in solidly-blue California telling me that they will never vote for another Democrat if there’s a bailout of homeowners. Seriously. It is a very, very unpopular idea for anyone but the actual homeowners who are underwater. Renters think they should go eff themselves and homeowners who aren’t in trouble wonder why they’re supposed to bail out people who got mortgages they couldn’t handle when they themselves did the right thing.

    Bailing out mortgage holders would be the morally right thing to do and probably the right thing to do economically, but it would be hugely unpopular even with solid Democrats. I’m not at all surprised that the administration didn’t go there given what I’ve heard from people who are firm Democrats.

  72. 72
    John Bird says:

    @cmorenc:

    Why didn’t Obama INSIST that the financial sector willingly sign on-board to financial reform legislation while he had them tied to the rocks, about to drown out of their gilded Central Park townhouses?

    Because Obama never had the financial sector in this position when it came to money. The entire country could have descended into chaos, lynch mobs and bank runs and cats marrying dogs, and Wall Streeters would have flown out on private jets trailing big dollar-sign bags and “HAW HAW HAW” speech balloons.

    Not that I think we did close to the right thing, which would have been to give the bankers the wink and the nod and the the big ol’ thumbs up, and even MORE money than they asked for, and then when the Democrats took power, nationalized the biggest banks and put their biggest figures on trial.

    The state has one big way to control malfeasance in the financial sector: its monopoly on violence, as expressed through the cops and the courts, which naturally terrifies “Libertarians” beyond belief.

    The Democrats could have become even more popular, proved their bonafides to voters, and reformed the banking system as much as humanly possible. They didn’t.

    And I’d love to believe it had to do with their stalwart belief in the free market and a complex analysis of economic impact, instead of believing that they have been bought. But, naw, yo. Naw.

  73. 73
    HyperIon says:

    For people who bash the TARP, shall we just let the banks fail next time? Because there will be a next time. Let’s get it straight right now what we want to do then.

    Too big to fail has NOT been addressed. Therefore, we will get a chance for a do-over. Let’s see how many folks want to ride the sinking ship all the way to the bottom then.

  74. 74
    NR says:

    The problem wasn’t the bailout itself; almost everyone who isn’t a teabagger agrees that it was necessary. The problem is that the financial “reform” bill passed by Obama and the Democrats did absolutely nothing to address banks and companies that are “too big to fail.” And so these bankers can continue playing as fast and loose as they want, raking in billions of dollars and not caring about the risks, because if they crash, the taxpayers will be right there with another bailout, because whatyagonnado, they’re too big to fail.

    Say it with me, kids: Privatization of profit, socialization of risk.

  75. 75
    DougJ is the business and economics editor for Balloon Juice. says:

    Seriously, has anyone, anywhere in this debate said “let the banks fall! It won’t have any effect on the economy!

    Yes, I know lots of people who said this on the left (though I don’t claim anyone here did). And Republicans were chanting “let them fail” not so long ago.

    I don’t think there’s a straw man here.

  76. 76
    futzinfarb says:

    @Zifnab:

    When the next financial crisis hits – and it will, because we’ve barely done a thing to clean up this first mess, and the banks have already gone right back to their old tricks – where will BoA and Goldman Sachs and Citigroup be, exactly?
    Who is really going to be holding the bag when the bottom falls out of the market again in five years, or two?
    The banksters are still holding a whole mess of paper assets. And they’ve spent the last two years pissing on every populist they can aim their dicks at.
    I mean, they’re practically begging for a Karmic bitch slap here.

    … they’re practically begging to give the peasants a Karmic bitch slap here. Fixed.

  77. 77
    DougJ is the business and economics editor for Balloon Juice. says:

    @HyperIon:

    The new legislation allows the fed to take over failing banks, which can streamline bankruptcy proceedings. It may help somewhat with “too big to fail”.

    Too big to fail essentially means that tying up the bank’s assets in bankruptcy court for three years would be disastrous.

  78. 78
    Brien Jackson says:

    @HyperIon:

    There is no such thing, for all practical purposes, as “too big to fail.” The issue is how they fail.

  79. 79
    John Bird says:

    @DougJ is the business and economics editor for Balloon Juice.:

    To be fair, the folks I knew on the left who were in favor of letting banks collapse were people who believed that the guaranteed chaos would usher in a socialist revolution, somehow.

    In one way, this is exactly like the libertarian opposition: it expresses the dogmatic belief that if your country descends into despair and barbarism, obviously your solution will succeed and not, say, Hitler’s.

    Not that this is any less stupid, but there you have it, another motive.

  80. 80
    wengler says:

    Wow.

    Where to begin?

    Well you ended up giving money to the institutions that caused the crisis while giving no money to the many institutions that didn’t cause the crisis but were nonetheless gobbled up by the crisis?

    This isn’t a simple task of breaking even. This is giving capital to the exposed capital rich and them using it to destroy the capital poor. How else do you think they were able to pay back the government? By ramming everyone below them as hard as they could. Seriously posts like this really show about how you aren’t getting it.

    TARP was the ransom paid to the investment banks so they wouldn’t destroy the economy. It was no more and no less.

  81. 81
    HyperIon says:

    @DougJ is the business and economics editor for Balloon Juice. wrote:

    The new legislation allows the fed to take over failing banks, which can streamline bankruptcy proceedings. It may help somewhat with “too big to fail”.

    Allowing banks to become as big as they want is a core part of the problem. Allowing the fed to take over such an institution is not a solution IMO. It’s too late then.

  82. 82
    Mark S. says:

    @DougJ is the business and economics editor for Balloon Juice.:

    Weigel was saying the other day that Thune had no chance for the nomination because he voted for TARP. I don’t really agree, but he’s a little more plugged into the thinking of teabaggers than I am.

  83. 83
    John Bird says:

    I’d also like to point out that nationalizing banks is not barred under the Constitution as the CW seems to be among some here.

    I mean, there’s a 5th and 14th Amendment and some amount of legal personality precedent based on a sketchy decision, but saying those mean we can never nationalize a failing bank is like saying, “I can personally own a RPG-29, check the 2nd Amendment and DC v Heller dawg, peace.” We don’t have to kill ourselves to live.

    It would have, and should have, gone to the courts, just like everything FDR ever tried to do to help this country.

  84. 84
    DougJ is the business and economics editor for Balloon Juice. says:

    @HyperIon:

    I think it is a partial solution.

  85. 85
    John Bird says:

    @wengler:

    TARP was the ransom paid to the investment banks so they wouldn’t destroy the economy.

    Correct.

  86. 86
    Bob Loblaw says:

    I think this discussion is (predictably) missing the forest for the trees.

    The reason TARP “succeeded” and is “cost effective” isn’t because of the capital infusions. It’s because of the accompanying regulatory forbearance that went along side. Otherwise known as the government becoming an accessory to fraud.

    Look at what’s happening in the mortgage market. Look at what’s about to go boom in the foreclosure sector. States are having to throw the whole thing out. It’s all fraud. It was always all fraud. These megabanks weren’t solvent after TARP, and some of them aren’t even solvent now. The entire thing is a sham.

  87. 87
    John Bird says:

    @HyperIon:

    I think this is a large problem too – I don’t think it’s necessarily ALWAYS too late when we nationalize, but sometimes it will be, and all it takes is one time to collapse the economy.

    Probably priority #1, or at the latest, priority #2, should have been aggressive new trust-busting legislation with expanded investigatory power.

    As a bonus, such a bill would have allowed a direct offensive against McCarran-Ferguson, backed by publicly shaming the health insurance companies as illegal monopolies. That, in turn, would have made space in public discussion for a better health care bill with less input from CEOs.

    Pursuing this kind of bill would have gotten us halfway there on both issues, even if the Blue Dogs killed it, even if the courts overturned it – because the line for new legislation would have been set. Needless to say, it might also have sustained Democratic popularity, since it would finally attack the capture of populism by the right.

    @Bob Loblaw:

    And, we shouldn’t forget, a sham that has destroyed the stability of entire municipalities and publicly-owned funds. Through the actions of federal agencies, the White House, and Congress, we’ve now become outright complicit in the swindling of local democratic institutions by private individuals and companies.

  88. 88

    @Mnemosyne:

    No, I haven’t forgotten it was a Bush program. I also haven’t forgotten that Democrats controlled a supposedly co-equal branch of government at the time.

    I know, I know, it’s probably unrealistic of me to expect Democrats to actually grow a spine and demand tradeoffs that benefited non-millionaires in exchange for handing 700 billion dollars to people who completely screwed up the economy in their greed and sowed misery across the country.

    As for an alternate bailout of homeowners, I suppose if all of America has a hard on for handing out money to the banks whose bad decisions and rampant lobbying of Washington caused the mess and wants to piss on their fellow citizens who believed the bull**** spewed from financial advisers, realtors, and cable news about the housing market, then I suppose the least they could have done was gotten cramdown passed and inflicted some punishment on the home owners in exchange for that relief.

  89. 89
    Stillwater says:

    @John Bird: TARP was the ransom paid to the investment banks so they wouldn’t destroy the economy.

    Indeedy. And for those who dispute the power of Wall Street to fuck up life for everyone else, just recall that there was a mysterious ‘flash crash’ that sent stocks tumbling out of control for a short time right as final debate was occurring on the current FinReg bill.

  90. 90
    John Bird says:

    If we’re going to discuss moral hazard, we simply can’t underestimate the beneficial behavioral and psychological impact of government action (or inaction) on the actual people in these sectors, and much more important as I see it, on the people currently entering those sectors or finishing up school to enter these sectors.

    We need to break the banks and break the health insurance companies, because the WHOLE LESSON of what’s happened in both the financial and health sectors is that when we let these companies’ lawyers write legislation, we are loading the gun, handing it to them, drawing it up to our heads.

    And of course I don’t mean break them in half – I mean, break them like horses. There are few countries as developed as the United States where companies like this feel they have free range to do whatever the hell they like, and they are not countries we want to emulate.

    We are paying these companies straight out of public funds to achieve public goals like economic stability and health coverage.

    And it sucks for both us and them (mainly them), but we’re going to have to reexamine the airy-fairy, still-reigning assumption that all they have to do to demonstrate competence and diligence in these areas is ensure their own profits.

  91. 91
    Sentient Puddle says:

    @Stillwater: Uh…if the purpose of the flash crash was to register disapproval of financial regulation, they sure did a shitty job of registering disapproval. Because, y’know, one would think that disapproval would mean a crash that lasted longer than five minutes.

  92. 92
    HyperIon says:

    @John Bird I agree.

  93. 93
    Nick says:

    @Linda Featheringill:

    I was pleasantly surprised to read that TARP is not costing that much, something like 60 billion and the AIG agreement had not been worked out at that point.

    Too bad no one is going to believe a word of it.

  94. 94
    Stillwater says:

    @Sentient Puddle: they sure did a shitty job of registering disapproval.

    Mild displeasure? Tut-tutting?

    Actually, right after that flash crash, the tenor of the debates did change, and IIRC the robust Ron Paul ‘audit the fed’ part was officially nixed in favor of Sanders milder version.

  95. 95
    BlizzardOfOz says:

    Strange world you Obots inhabit. The Ministry of Truth says we made a profit, so what more is to say. Also, we’ve always been at war with Afghanistan, right?

  96. 96
    That's Master of Accountancy to You, Pal (JMN) says:

    @John Bird:

    I’d also like to point out that nationalizing banks is not barred under the Constitution as the CW seems to be among some here.

    I don’t know of anyone, here or anywhere else except among the teabaggiest teabaggers, who have ever argued that it would be unconstitutional to nationalize the banks. If they do, they’re being stupid, because the FDIC is constitutional, and it would be basically the same thing.

    What we have argued is that it would have been illegal. To nationalize anything but a purely commercial bank would have involved the executive branch stepping up and exercising authority that Congress explicitly denied them. The law was very clear: the government should act to take over commercial banks, and it should do absolutely nothing of the sort with investment banks (Citi, BoA, Merrill, and on and on, all of whom are only partially commercial banks, at best) or insurance companies (which are explicitly regulated by the states).

    This isn’t just conventional wisdom. It was the plain language of the law. Unless you like the idea of the executive branch breaking the law when it feels like, nationalization was not an option. Which is where we get to:

    @Comrade Dread:

    I know, I know, it’s probably unrealistic of me to expect Democrats to actually grow a spine and demand tradeoffs that benefited non-millionaires in exchange for handing 700 billion dollars to people who completely screwed up the economy in their greed and sowed misery across the country.

    How would you suggest that they have done this? They didn’t have the authority to compel the banks to do anything. Further, the people running the banks (as opposed to owning them; there was a huge principal/agent problem) didn’t need the bailout nearly as badly as the government did. Most of them were already losing their jobs anyways. What incentive did they have to negotiate?

    The government had the choice of bailing out without a linked reform, or not bailing out. Making the bail outs conditional wasn’t an option.

    I also think that the whole “too big to fail” argument is vastly overstated. Regardless of whether any particular bank is too big to fail, the banking sector clearly is. There’s no way for it not to be in a modern economy. In a situation like we had in 2008, whether it’s a few really big banks teetering on the edge of collapse or a lot of smaller banks doing the same doesn’t make much difference. The same thing is true going forward. There are some reasons why I’d like to break up the big banks (though that’s a lot harder than it sounds, because you have to start by figuring out EXACTLY what you mean by the word “big”), but preventing a complete banking collapse isn’t one of them.

  97. 97
    futzinfarb says:

    There is an aspect of anger at TARP that I think is being overlooked: it is the anger related to our utter abandonment by the Very Serious People and Ultimate Beneficiaries (VSPUB) to this current free–market–solves—everything—and—I—mean–everything—including–fraud, let’s–take–a—chainsaw—to—regulation, trickle—down—on—the—pee—ons disaster that had been proceeding apace for decades now. According to this new rulebook s**t like TARP not only shouldn’t happen, but couldn’t and wouldn’t, guaranteed, period, now go forth and prosper. Many of us suspected otherwise and raised alarms but to no effect because we’re not VSPUB. We were told to shut up, get with the program, play by the new rules because that’s how the system is going to work from now on forever, and finally that if we have problems with the game it was simply because we weren’t enlightened enough to the new reality or weren’t capable of successfully playing by the rules. What TARP was to some of us, then, was a monumental, a historic, an unabashed demonstration, decades in the making, of both utter ideological failure and hypocrisy of the highest order. It exploded this paradigm into a thousand points of s**t, and we quite frankly chafed at eating and breathing that s**tstorm which mysteriously bypassed every last one of the VSPUB many of whom tried to pass it off as a fresh spring shower with a double rainbow (all the way). However misplaced the anger was in TARP as policy, you simply cannot overlook that if you meticulously and deliberately set up a scenario like this, feed the population such a demonstrably fraudulent story, when it comes apart at the seams tempers are going to flare and folks will want to cram that s**t back down the throats of VSPUB, no matter the consequences. It seems both unrealistic and more than a little smug to expect most normal people to see “eating that small amount of s**t paid off in the long run, because, at the end of the day, you didn’t in fact die of cholera, you just had a terrible bout of diarrhea, and this chicken broth I’m bringing you now will taste so much better, and also too if you hadn’t eaten that s**t you’d be eating a whole hell of a lot more now” in a positive light. And to top it off, as others have pointed out, it seems at least likely that the manner in which TARP and its followups have nearly completely disregarded the nature of the failure and hypocrisy, have shamelessly maintained a transparent charade that the rules are perfectly in tact and fully operational, has laid the ground work for us to get sprayed with much more s**t yet again in a few years.

    That’s all I have to say about that.

  98. 98
    different church-lady says:

    @Mnemosyne:

    people say they object to the “concept” of bailing out the banksters, but they never seem to say what the practical alternative was to that bailout. What was the government supposed to do if they didn’t do a bailout?

    And that’s the whole point: the people who object to the “concept” (and the quotes are important there) live in a conceptual world, not the real world, never mind a practical world.

    In a conceptual world, you get to bitch about anything you want to bitch about, without having to have a genuine or practical understanding of it. You don’t need to have solutions, you just need to have ill-defined “concepts” like, “THEY’RE BAILING OUT CROOKS!”

    So, when you ask them, “Hey, would the country be better off with no functional banking system?” they don’t get it, because it’s simply not in their concept of what happened.

  99. 99
    Nick says:

    .@Observer:

    TARP is a success because it won’t lose money? That’s not the criteria to judge it by nor was it the rationale proffered to having to do it.

    TARP is a success because it prevented a complete collapse of the banking system and possibly society. The fact that it will cost little or money eliminates a common criticism of it.

    Our leaders (and perhaps Bush too), managed to figure out how the make this necessary evil a positive in the end, that’s something to celebrate.

  100. 100
    Corner Stone says:

    @different church-lady: You and Mnemosyne miss the point, as usual.
    The choices weren’t TARP or no TARP.
    People are making arguments that allow for TARP with many different enforcement points.
    But, wevs. Only ridiculous people with ridiculous points to make keep typing this.

  101. 101
    DFH says:

    @Corner Stone:

    The choices weren’t TARP or no TARP.

    Oh, what was our other option? Magic fairies? Oh we could have just let the whole banking system fail. Yeah, that’s the ticket!

    1.) Financial system collapse
    2.) ????
    3.) Utopia

    this is what church lady means about living in a conceptial world. You live in one of your own creation and everyone who doesn’t see it is an idiot. Back on Earth…

  102. 102
    futzinfarb says:

    @different church-lady:

    And that’s the whole point: the people who object to the “concept” (and the quotes are important there) live in a conceptual world, not the real world, never mind a practical world.

    Yes. And when we said, “ummm, maybe an unregulated, greed-driven, monstrously leveraged, bloated, over-compensated, influence buying, undertaxed financial sector isn’t such a good idea” we were — let me think — oh yes, living in a conceptual world, not the real world, never mind a practical world. We were, apparently, premature antifinancialists.

  103. 103
    different church-lady says:

    @Corner Stone:

    You and Mnemosyne miss the point, as usual.

    I’m sorry, have we met? Is there some other instance of my usually missing the point you can refer to? Or is this just a form of rhetorical sloppiness on your part?

    As for what my point actually is, you seem to be missing it quite nicely as well: I am not making a defense of TARP. I am pointing out that many many people who are complaining about “THOSE BIG BAILOUTS!!!™” have — to say the least — a very loose grip on the factual elements of what they are complaining about.

  104. 104
    DFH says:

    @different church-lady: Better off just ignoring him. He’s looking for a childish flame war.

  105. 105
    Mnemosyne says:

    @Corner Stone:

    The choices weren’t TARP or no TARP.

    No? Perhaps you need to hie yourself back to the newspaper archives of 2008 to refresh your memory about what a fucking panic there was going on when TARP was passed. Frontline has done some great coverage if you don’t feel like reading:

    Inside the Meltdown

    Breaking the Bank

    I realize that people love to use “TARP” as shorthand for “everything I hate about the economic decisions that the Obama administration has made,” but it’s used that exact same way by both the right and the left, so at this point I literally have no idea, when people complain about “TARP,” if they’re complaining because the auto companies were bailed out or if they’re complaining because cramdown didn’t pass.

  106. 106
    Mnemosyne says:

    @Comrade Dread:

    I know, I know, it’s probably unrealistic of me to expect Democrats to actually grow a spine and demand tradeoffs that benefited non-millionaires in exchange for handing 700 billion dollars to people who completely screwed up the economy in their greed and sowed misery across the country.

    So the Democrats put that in the TARP bill and … Bush signs it? Really?

  107. 107
    different church-lady says:

    @Mnemosyne:

    I realize that people love to use “TARP” as shorthand for “everything I hate about the economic decisions that the Obama administration has made,” but it’s used that exact same way by both the right and the left, so at this point I literally have no idea, when people complain about “TARP,” if they’re complaining because the auto companies were bailed out or if they’re complaining because cramdown didn’t pass.

    DING DING DING DING DING!!! WE HAVE A WINNER!!

  108. 108
    Sentient Puddle says:

    @Stillwater:

    Actually, right after that flash crash, the tenor of the debates did change, and IIRC the robust Ron Paul ‘audit the fed’ part was officially nixed in favor of Sanders milder version.

    Ugh. This still puts you in conspiracy theory territory. However…

    Back when the legislation was being negotiated, I had a pretty simple barometer for measuring how well someone understood financial reform. The harder someone fought for a Fed audit, the less they understood about whatever the fuck was going on.[1] That or the more they were letting themselves be hoodwinked. Or both.

    Back then, I thought it showed some fundamental inability to discern between the Treasury and Fed. When one of them throws around money, the actual implications of the policy vary pretty wildly depending on which one does it. And in the case of the Fed, any data on how they threw around the money is going to be pretty worthless to most people.

    Today, it’s more a case that I think these people don’t have a clue in hell what a federal reserve is supposed to do. When I see, let’s say, people trying to raise hell about the Fed’s balance sheet, I just shake my head because it, almost by definition, doesn’t matter.

    But seriously, it’s things like this that make me think everyone on the left needs remedial macroeconomics 101 just to make sure they know what they’re talking about.

    [1] This goes just for people on the left. Those on the right are monetary cranks, and being bitchy about the Fed is just what they do. Ron Paul was clear in that he wanted to totally shut down the Fed. I honestly have no fucking idea what anyone who held economics beliefs to the left of Chicago intended to accomplish with a Fed audit.

  109. 109
    Corner Stone says:

    @DFH: God. Catch a clue imbecile.
    TARP did not have to happen the way it did.
    You and other simpletons like Mnemosyne and diff-church lady want to be splitters.
    We had other conditions that could’ve been imposed.

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    different church-lady says:

    @Corner Stone: OK then…

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    different church-lady says:

    @Corner Stone: For the second time: I am NOT defending TARP. I am making a COMPLETELY different point than the one you keep accusing me of.

    You get the last word, as I will not be continuing this exchange with you.

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    Honus says:

    @RodeoBob: Please yank your head out of your ass. millions of people have loudly and repeatedly said “let the banks fall! It won’t have any effect on the economy! Let the banks fail and crash and burn because it will only hurt the bankers!”
    Basic lesson in banking: when you deposit money in a bank, it isn’t yours anymore. It is the bank’s. What you get is a promise from the bank to pay you the money on deposit. If the bank fails, you don’t don’t have any money because they can’t honor that promise. I don’t know about you Bob, but I had some money in the bank to pay my bills in the fall of 2008. Most of my money, in fact, because I’m mainly a working man and I don’t speculate. I didn’t want the banks to “fail” meaning I would lose most of my money and couldn’t pay my bills.
    Most people don’t understand this was what was at stake. I think you’re one of them.

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    Corner Stone says:

    @Honus: Are you retarded?

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    liberal says:

    @Sentient Puddle:

    When I see, let’s say, people trying to raise hell about the Fed’s balance sheet, I just shake my head because it, almost by definition, doesn’t matter.

    LOL. So we can just take any debt we don’t like, and wave the magic “fed balance sheet” at it and make it disappear?

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    liberal says:

    @Martin:

    What do you think banks ARE? They’re institutions that get cheap money and loan it back out at a higher rate. That’s the fucking definition of a bank!

    I thought the point is that they’re borrowing from the Fed at essentially 0% and lending it back to Treasury at something north of that.

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    liberal says:

    @Nick:

    The fact that it will cost little or money eliminates a common criticism of it.

    Yawn. How many times do we have to repeat that TARP was just one piece of the bailout?

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    That's Master of Accountancy to You, Pal (JMN) says:

    @liberal:

    LOL. So we can just take any debt we don’t like, and wave the magic “fed balance sheet” at it and make it disappear?

    Sort of, yes. By definition, the Fed can’t run out of money. There are some temporary restraints in how much it can take on, but they are easy to modify. No matter how toxic the assets, the Fed can’t go bust.

    The effects of an increasing Fed balance sheet aren’t solvency related; they’re money supply related. The more assets they buy, the more money there is in the system. So, the danger of a ballooning Fed balance sheet is inflation. Right now, that’s a feature, not a bug.

    It’d be nice if the Fed bought more assets. There is a lot of discussion as to exactly WHAT assets it should be buying to produce the most demand. That’s a technical discussion that I haven’t followed that closely, but the important criteria aren’t whether or not the assets are really worth anything.

    If the Fed finally does start pumping out more money, there may be a point in the middle term future where inflation does become a problem. In that case, the Fed would need to start selling stuff to pull money back out. That’s still not a situation where the quality of the balance sheet matters that much, because they can always sell Treasuries.

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    That's Master of Accountancy to You, Pal (JMN) says:

    @liberal:

    I thought the point is that they’re borrowing from the Fed at essentially 0% and lending it back to Treasury at something north of that.

    Again, sort of. If they want to lend it back to the Fed for a higher interest rate, they have to do so for a longer term. To borrow for something close to 0%, they are doing so in the overnight market, where the interest they’re paying could go up tomorrow. It won’t for any tomorrow really soon, but so what? The Fed can borrow money for pretty much the same interest, so we’re not out anything.

    To get a rate that’s sufficiently greater than 0% for it to be meaningful, they have to buy Treasury bonds with durations of 10 years or longer. That means that they’re taking on interest rate risk. If the economy picks back up, interest rates are going to rise. All of a sudden, those 10-year notes paying less than 3% don’t look so good.

    There really is no such thing as free money. In this case, the price of that money is a duration mismatch. Of course, borrowing short and lending long is exactly what banks do, whether they’re at the discount window or sitting on your savings. That involves risk.

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    futzinfarb says:

    @That’s Master of Accountancy to You, Pal (JMN):

    There really is no such thing as free money. In this case, the price of that money is a duration mismatch. Of course, borrowing short and lending long is exactly what banks do, whether they’re at the discount window or sitting on your savings. That involves risk.

    Thanks for patiently explaining these things to this motley mob standing here with pitchforks and torches. But I have to say, as reasonable as you make all this sound it still seems like a completely rigged game in so many ways. For instance, you talk about “risk”, but WHOSE risk? The short term borrowing from the Fed and purchasing of 10 year treasuries is a piece of what these institutions are able to cite as their unprecedented profits and that in turn justify astronomical compensation to executives who will be LONG gone before the piper needs to be paid and those ten year treasuries mature. So the IBGYBG ethos really begs the question of whose risk it is, particularly in light of how that whole risk burden thing played out in fall 2008. Also, I just can’t see how an executive who can pull down and sequester over a very short term millions, tens of millions in compensation, is incurring the kind of personal risk in these “long” term commitments that gives even the remotest sense of fairness to the system. And moral hazard has been done to death, really done to death, yet considering what we’ve been through, do I really believe, do the financial institutions really believe, that the Fed, which presumably is fully cognizant of the process and risks you describe, is going to move rates in such a way that those institutions might suffer real harm and even fold? There are more and manifold ways in which this all just looks so utterly rigged to our peasant sensibilities, but I’ll leave it there for now.

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    GeorgeJ. says:

    Propaganda much?

    helped people millions of people, and had a negative cost to the government?

    I’ll file this one under lying liars and the lies they tell.

    Because actually the latest figures are that at least 66 billion will likely be lost to never be recovered.

    And when you equate millions and people being helped–it would be accurate if order this way; The top few percent and Wall Street wheelers and dealers being helped by far the most,and the ‘millions’ would pertain to the cash and stock bonuses that they have lavished unto themselves over and over again during the years of this downturn while at the same time Main Street has suffered terribly and continues too in many ways still today.

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    Stillwater says:

    @Sentient Puddle: I honestly have no fucking idea what anyone who held economics beliefs to the left of Chicago intended to accomplish with a Fed audit.

    Then maybe you should study the issue more. The idea that the Fed is a neutral arbiter of interest rates and money supply is a bit naive, given the tight nexus between Fed leadership and private investment banks. Bush closed the books on TARP bailout monies, Geithner refused to open them, and since then, there is lots of evidence that the Fed is actually involved in purchasing assets in the equity markets to forestall further erosion of the financial markets. Look into it. You might be surprised.

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    Sentient Puddle says:

    @Stillwater:

    … there is lots of evidence that the Fed is actually involved in purchasing assets in the equity markets to forestall further erosion of the financial markets. Look into it. You might be surprised.

    And again, it still wouldn’t matter a damn bit because the Fed’s balance sheet pretty much doesn’t matter. All this essentially was is the Fed injecting money into the supply, and the only way that could be seen as a faulty thing to do is if it led to a big rise in inflation (which it hasn’t).

    So no, I still have no fucking clue what the goal of auditing the Fed was. You’re going to have to spell it out more explicitly than “study the issue more.”

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    Stillwater says:

    @Sentient Puddle: I don’t really have a dog in the audit the Fed fight. I disagree with you, however, that the findings of such an audit are immaterial – I think they would be very surprising, in fact. But I don’t really think anything important – other than the usual corruption – hinges on opening up the Fed balance sheet. My earlier comment about auditing the Fed was reinforcing my view that the financial markets have us by the balls, and that the Fed sets policy with the profits and health of the financial markets, and even particular investment banks, as a priority. The evidence for this is pretty overwhelming, and if you don’t believe that evidence, then we’ll just have to disagree. If you unaware of it, I could present some of it to you (I don’t really want to engage in that right now, this late, but I could at some other time). The point is that the Fed is not simply a neutral ‘injector of money’ into the overall economy. Nor is it merely a stipulator of interest rates. It has become primarily an institution catering the interests of a few banks and the investment climate generally, and secondarily concerned with its mandated function.

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    Mnemosyne says:

    @Stillwater:

    I think part of the problem here is that most of the people who are quibbling about this are accountants, and an audit to them is a very specific procedure. You’re talking more about an investigation, but when you (or, rather, people like Ron Paul) use the word “audit” interchangeably with “investigate,” it muddies the waters.

    Not to mention that Paul uses the word “audit” as a scare word to remind people about the big scary gubbmint taking their tax dollars: “The IRS is going to audit me? Well, then I’m going to audit the Fed. So there!” He’s using it in a very specific way to get a very specific response from his audience of anti-tax, anti-government libertarian nuts, and I really wish people would stop grabbing onto his buzzwords and extending his meme that taxation is illegitimate.

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    bs23 says:

    my own complaint regarding TARP and associated Fed asset purchases, etc. is basically the same as the solvent California homeowners who don’t want to bailout their insolvent brethren: why should there be no price for fucking up? *

    This complaint doesn’t mean I don’t support that TARP was done at the time, since there were very few options and even less time to consider them. Making the banks pay the full price for fucking up at that moment would have destroyed the economy and we’d all be eating cat food.

    But our chance to meaningfully reign in the banks was the new financial regulation rules, which don’t seem to address the main problem: investors and managers of said banks got bailed out in the end. They should have lost their shirts, since, after all, they used their money to purchase a bunch of worthless mortgages. And because they were bailed out, they’ll feel free to take huge risks in the future when the opportunity presents itself, under the expectation of being bailed out again.

    Why were these banks not broken up or whittled down? Can we really expect different behavior if they aren’t? If they couldn’t have been legally nationalized at the time, why were new laws not written allowing for this? Or, to do the same thing a different way, why were smaller banks not encouraged to take more of the financial-services load (i.e. through gov’t underwriting of their loans, etc). I realize the new financial regulation does contain provisions for receivership, but somehow I don’t quite believe all the meaningful moral hazards have been addressed. This is just an awful precedent.

    (*) I think the TBTF banks should be broken up, but I don’t have any idea what to do about underwater homeowners.

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    Brighton says:

    I disagree. There is a tremendous cost to GDP due to the recession caused by mismanagement of financial markets by the Bush administration. This per CEPR:

    “The current downturn had led to the worst period of sustained unemployment since the Great Depression. This suffering is especially tragic because, like the Great Depression, it is entirely the result of misguided economic policy. Unemployment corresponds to lost production of goods and services. . . The CEPR Recession Waste Clock allows people to see the value of the goods and services that we have lost in this downturn. It measures the gap between potential GDP (as calculated by the Congressional Budget Office) and actual GDP. Given the current unemployment rate of 9.6 percent, the amount of lost GDP as measured by this gap increases at the rate of $2.873 billion per day. This comes to $120 million an hour, $2 million a minute or $33 thousand a second.”

    If we had let the banks fail and completely nationalized commercial banking, we would have had nothing worse than the $2trillion loss to GDP occasioned by the housing bubble bursting.
    Plus we would have skipped the moral hazard of letting these gamblers use the taxpayers as a hedge to bet against in the future. The emerging financial industry would have become more honest and ultimately stronger. Nobody would have gotten a bonus for screwing over the American people. Nobody can be too big to fail if capitalism is to work.
    Ireland is now nationalizing its banks, as are a few other countries. They will have better results by doing so over the long haul, and their people will suffer less. It’s time to Hate on the Rich.

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    Stillwater says:

    @Mnemosyne: You’re talking more about an investigation, but when you (or, rather, people like Ron Paul) use the word “audit” interchangeably with “investigate,” it muddies the waters.

    This is a good criticism. My use of the term ‘audit’ does derive from Paul’s use and, as a result, feeds the anti-Fed meme, whereas my intended meaning of the term – and I would presume many other people who want transparency and accountability – is better captured by investigation.

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