TARP saved my nation, and all I got was this bitter, cold tea party


Remember TARP, the Toxic Asset Relief Program?

Oh, that’s right — we hate it.  Big hole in the federal budget and all.

Then you should be dancing that it died Sunday night, right?  Yeah, that’s right:  TARP expired.

But, maybe we should be lamenting its passage, and celebrating it.  It ended up costing us almost nothing but the problem of having Tea Party, ignorant ingrates involved in the campaign.  It might even have turned a profit.  In any case, it didn’t leave a big hole in the federal budget, and there is little doubt that it saved us from the Greater Depression.

See the story at NPR:

What do we do with the end of TARP?

And what do we do with the news that TARP will not have cost anything like the $700 billion we thought it would? What if it really cost $50 billion, or less?

What if, in the end, the Toxic Asset Relief Program so controversial at birth and vilified throughout its two years of life turns out to have turned a profit for the government and the taxpayer?

We — most of the news media this is — simply don’t know what to do with this news.

The suggestion that TARP did not blow a hole in the federal budget potentially blows a hole in some other presumptions as well. Economists will argue for years over the necessity of TARP, and the rest of us can argue over the bonuses investment bankers still got (and continue to get).But we won’t argue about whether the government could or should have done more to prevent the collapse of the credit markets and the mass failure of banks in 2008. Because the government did do TARP, and those other things did not happen. We did not go back to 1929 or worse. And, unlovely as it may be, TARP remains the closest thing we have to an explanation for that.

Still, the expiration of the program as Sunday turned to Monday passed largely unremarked. And insofar as the media have noticed the story of TARP’s apparently much-reduced cost, that tale has been anything but ballyhooed.

(For an exception, see the package offered Sunday evening by Guy Raz and the crew at Weekend All Things Considered.)

On the last business day before TARP expired, The New York Times and The Washington Post did report the much-reduced cost figures — mentioning the potential for the program to actually make money for taxpayers in the final accounting.  But the Times put the story in the Business Section, and the Post played it on the Federal Page.

What other “common sense” delusions will misdirect this year’s election vote?

What thanks do we get?  What thanks do we give?

17 Responses to TARP saved my nation, and all I got was this bitter, cold tea party

  1. I heard the story and it probably won’t hit the “mainstream” news.
    I saw your blog for the first time tonight–looks good. I will check it out in the future.

    Like

  2. Jim Stanley says:

    James,

    I agree about the WPA. I am also quite partial to the CCC — (not the Council of Conservative Citizens of today, mind you…but the Civilian Conservation Corps). Talk about a program that created some lasting value! We could use another one…our national battlefields could use some sprucing up. ;-)

    Speaking of intervention and regulation —

    Fascinating book review on NPR today. The interviewed the author of http://www.amazon.com/Hellhound-Wall-Street-Ferdinand-Investigation/dp/1594202729

    I need to get a copy and put it in my stack!

    Like

  3. Jim Stanley says:

    Interacting here with Morgan…

    ME: It’s pretty clear the West Virginia mine disaster could have been averted had we the same sort of mining regulations as other “first world” nations.

    MORGAN: The trouble with this, is it presumes regulators are somehow infallible — or, at the very least, possessing some kind of supernatural wisdom that eludes the capitalists they seek to regulate. And that they are somehow incorruptible.

    Hi there Morgan! Thank you for pointing that out. I completely agree that laws, regulations, inspections and mandates are no guarantors of anything (except, possibly, that violators will be punished — which, itself, is helpful). But yes, they are no panacea. Not in West Virginia, not in the Gulf of Mexico, not at the nuclear power plant down the road and not on the Moon, if we ever do anything there again. You’re spot-on, sir.

    One thing that history (recent and distant) shows us, however is that there is certainty involved when there is no regulation, accountability, inspection or mandated protocol. We can be certain of death, disease, maiming, cheating, stealing and disaster.

    The government in our little neck of the woods mandates smoke alarms on every floor of every home, hotel room or office. There are still deaths and injuries due to fires, despite these mandatory devices. In some cases, I’ll bet someone forgot to change the batteries. In others, I’m sure even the loud scream of the smoke detector couldn’t wake up the irresponsible drunk who was passed out and unconscious during the fire. In other instances, the flames probably spread with such alacrity that even the warning of the alarm was useless. So you’re right. The mandate is not tantamount to a public safety panacea.

    And yet some lives ARE saved precisely because government somewhere chose to intervene and force its will on private citizens and businesses. Statistically, I’ll be a lot more lives are saved now — because of these laws — than were saved prior. And factor in injuries and property damage, too, if you like.

    We have sown the wind of deregulation. We are now reaping the whirlwind.

    Like

  4. James Hanley says:

    Lisad,

    As you can see from my comments below, I’m not a big fan of TARP, either. But to say, “it did cost us something,” is not to really make a substantive criticism. Everything costs something; the question is what you get in exchange for it. My house cost something, but it would be a strange grounds for criticizing it. The roads we drive on cost us something, as do fire departments, etc.

    The difficulty with TARP, of course, is seeing just what that benefit is, and how much it’s worth. Those who think there would have been a wholesale economic meltdown guesstimate the return from TARP as being huge. Those who are less dubious or, like me, just think we’ve postponed the day of reckoning, guesstimate the return at a much lower rate. Because we’re trying to measure something that doesn’t actually exist–a thing that didn’t happen–all estimates are based on a fair amount of guesswork.

    But “it costs something” is no more than a truism. It’s not false; it’s just not very meaningful.

    Like

  5. Ed Darrell says:

    Feel free to address the problems, Lisa. How much did it cost us? What were the alternatives?

    Like

  6. Lisad says:

    What a bunch f a$$ kissing in the comments section. Please address the problems with TARP such as the huge bonuses – they do cost us something.

    Like

  7. James Hanley says:

    Re: The Depression. I can’t say much in detail right now because I haven’t looked at that in a number of years now (and with working on my book I can only write comments on the fly at this time). But briefly, a couple of the problems were the failure of the Fed to exercise good monetary policy (they didn’t make an effort to pump money in after the crash, but wanted to keep money fairly tight), and Hoover’s effort to keep prices and wages were they were, instead of letting adjustments occur, and FDR’s constantly-changing regulations, which scared off investors because they didn’t know what rules of the game would be applicable down the road–investors like certainty, and FDR created a very uncertain investment environment.

    The WPA was cool, though. It was probably an inefficient program in a lot of ways, but it kept food on the table for a good number of families, and we still have a lot of cool projects from it. I was hiking with a friend in a state park in Iowa, and there was a stone bridge across a river. Immediately I could tell it was a WPA bridge. I have to appreciate a program that created some real lasting value.

    And thanks for the plug!

    Like

  8. Ed Darrell says:

    Dear Readers, indeed, drop by Hanley’s place and read those chapters. I started chapter one, and found it very interesting and spot on, at least in the first couple of pages about how institutions evolve.

    Like

  9. Ed Darrell says:

    For one, the Depression was as bad as it was not because the crash of 1929 was particularly bad, but because the government response (through Hoover’s years and Roosevelt’s) were particularly inept.

    I worry particularly about claims that significantly more stimulus is needed, for two reasons.

    I’ve spent more than a month, total, over three years in seminars discussing these points — and I must say, I am intensely interested in hearing what you think government should have done instead.

    I’m always up for a good alternative.

    Like

  10. James Hanley says:

    Off-topic, but I hope forgivable.

    Ed, my first two chapters are up. Feel free to stop by and comment (if you have time to read full book chapters). Other readers and commenters here are welcome, too. It’s a work in progress (a book to replace the American Government textbooks I usually use), and critical eyes to catch my errors, comment on the style, presentation, and emphasis, etc., would be most welcome. (That is, most readers here would be welcome. Don’t come if you think you’re one of those I wouldn’t extend such an invitation to.)

    Sorry to take over Ed’s blog for my own selfish purposes. Mr. Darrel, if you object, please feel free to delete this comment, and I’ll hold no hard feelings. It is a bit presumptuous of me.

    Like

  11. mkfreeberg says:

    As to intervening sooner–if you have to intervene a lot in your system, then it’s a poorly designed system. I think we need a redesign of the system that helps prevent these problems.

    Agree. Of course, most of what’s busted about the system has to do with signals being inhibited, the kind of signals that are repressed and confused with regulation, and communicated clearly in a free market.

    You’re making much better sense here, than you are…well…elsewhere.

    It’s pretty clear the West Virginia mine disaster could have been averted had we the same sort of mining regulations as other “first world” nations.

    The trouble with this, is it presumes regulators are somehow infallible — or, at the very least, possessing some kind of supernatural wisdom that eludes the capitalists they seek to regulate. And that they are somehow incorruptible.

    Ed likes to talk about Dunning-Kruger anytime someone deigns to show resistance to what he’s instructing them to think. As one who’s worked shoulder-to-shoulder with regulators, I can tell you there is no better place to go looking for DK if you’re trying to snag it from the wild & see how many quarts of it you can bottle up. Bring a LARGE butterfly net.

    Like

  12. James Hanley says:

    Ed,

    I wasn’t suggesting the S&L bailouts weren’t necessary. I may not have been clear there. My point was that they weren’t well done. But, yes, the real problem occurred before the bailout. The problem was the same kind of moral hazard and perverse incentives I’m trying to emphasize. Deregulating them while keeping the FSLIC (deposit insurance) in place was, to be kind, a deeply stupid policy. I think we agree on that.

    I’m not persuaded that failure to bail out the financial sector this time around would have made 1932 look good. None of the economists I follow have made such a claim, and there are reasons to doubt it. For one, the Depression was as bad as it was not because the crash of 1929 was particularly bad, but because the government response (through Hoover’s years and Roosevelt’s) were particularly inept.

    I worry particularly about claims that significantly more stimulus is needed, for two reasons. One is that I am dubious in general about fiscal stimulus (short story, I think monetary policy is based on more solid economic theory than fiscal policy–lots of economists are on my side, but of course lots are on the other side, too). The second is that stimulus is based on borrowing, which is precisely what we need to get away from now, as soon as possible. Given that we’ve been in recession, it’s possible to do it too soon. But that doesn’t mean going too far in the opposite direction is wise, either.

    As to intervening sooner–if you have to intervene a lot in your system, then it’s a poorly designed system. I think we need a redesign of the system that helps prevent these problems. Just as S&Ls were a great system before the design was changed, we need to find that structure for the financial system that sets up good incentives and minimizes bad incentives. But bailouts themselves create very bad incentives. I’m just not sure there’s much logic to “we need to keep doing the same thing that got us to this point just a little bit longer.”

    But I recognize that intelligent people can disagree intelligently on this issue.

    (Jim Stanley–thanks for the kind words. I’m just an average college prof of political science at an average small college, with a degree from an average PhD institution. I’m even average height, average weight, and average looking. Years ago I worked in a shoe store and learned I have perfectly average feet for an American male. I’ve only been above average in my luck at having some good teachers who taught me the difference between analysis and advocacy, and insisted I do the first one before–and sometimes just in place of–the latter. Honestly, a comment like yours makes me feel like maybe I’m doing something right, and whether you ultimately agree with me or not doesn’t matter. As to the question about NZ’s crisis, I’ll have to get back to you. After a long day writing, then scraping my front porch to paint it, I’m a bit brain-dead. I’ll try to get you a semi-intelligent answer, though.)

    Like

  13. Jim Stanley says:

    Ed says, >>>”The lesson is NOT that we can or should get away from government intervening to clean up the messes, but that failure to intervene as necessary, earlier, causes enormous financial disasters.<<<"

    You hit the nail on the head.

    In fact, this entire year has been a sickening ode to the legacy of deregulation. It's pretty clear the West Virginia mine disaster could have been averted had we the same sort of mining regulations as other "first world" nations. 29 lives lost. It's obvious that regulation would have saved the lives of the 11 BP oil rig workers, too. So beyond the cost in dollars — which is almost incomprehensible — deregulation costs human lives, too.

    And yet the moronic drumbeat of "the market solves everything" goes on, louder than ever.

    Like

  14. Ed Darrell says:

    1. The argument that it saved the nation is largely a post-hoc argument. It’s not devoid of logic, but that logic isn’t unassailable. Not all economists believed then, and not all believe now, that TARP was a good idea. Yes, the recession likely would have been worse, but that may have been a short-term pain we would have been better of suffering for long-term gains.

    I think most scenarios go well beyond a “recession.” The sort of collapse had the government not acted would have made the Crash of ’29 look like good times, and make 1932 look like “the good old days.” We are in for a lot of long-term pain anyway, largely because the stimulus packages have been so woefully small in comparison to the economic need.

    5. This one can come across as rather curlish, and perhaps it is, but this success can create hubris in government about its ability to manage such crises. Historically it hasn’t worked out so well (think S&L bailout, for example). A teenage driver who manages to dodge around the crossing gates and not get hit this time is tempted to keep doing it. Have we really become better drivers, or did we just get lucky? There’s no solid economic or political theory that gives me encouragement on that score, nor does history.

    The S&L bailout was required because the federal government deregulated S&Ls, and then failed to provide adequate watch dogs; this latest real estate crisis can be blamed exactly the same way.

    The lesson is NOT that we can or should get away from government intervening to clean up the messes, but that failure to intervene as necessary, earlier, causes enormous financial disasters.

    Mark Twain used to run a bit contrarian; he said, “Go ahead, put all your eggs in one basket, but then WATCH THAT BASKET!”

    Portfolio diversification or no, we need watchdogs to rein in those who would shoot dice with the mortgate, milk and baby’s shoes money.

    Like

  15. Jim Stanley says:

    James,

    I don’t know you…but your responses in multiple threads are always so refreshing and helpful to me as I try to parse out my feelings and reactions to various issues. Thank you!

    In your post, you say… >>>”A New Zealand economist who comments on my blog thinks we’re headed for a major debt crisis that we won’t be able to resolve with politics as usual, and I think he’s right.”<<<

    Does your economist-friend have anything to say about what that would look like? I think he's onto something. We now have a company (I forget the name) selling "virtual" goods online so people can buy them for their game applications on Facebook. For example, for ten actual dollars, you can buy a virtual lawn gnome for your virtual farm.

    I find that chilling. Some author commenting on precisely that phenomenon recently (I don't have his or her name) summarized it by saying, "This can't end well." I couldn't agree more. If that's what we've come to — exporting the manufacture of ACTUAL goods and excelling at the sale of VIRTUAL goods — then I am afraid for us.

    I'm not sure my fellow liberals have answers. But they seem to have a track record of applying erudition and informed thought.

    My friends on the right (especially since the deaths of Bill Buckley and Wm. Safire) are utterly lacking in that department. They keep offering up nothing but magic Libertarian fairy dust and Ayn Rand morality.

    So, it seems we're caught between a rock and a delusion. Thoughts?

    Like

  16. James Hanley says:

    Fortunately TARP turned out reasonably well. I still question whether it was a good idea for several reasons.

    1. The argument that it saved the nation is largely a post-hoc argument. It’s not devoid of logic, but that logic isn’t unassailable. Not all economists believed then, and not all believe now, that TARP was a good idea. Yes, the recession likely would have been worse, but that may have been a short-term pain we would have been better of suffering for long-term gains.

    2. For one thing, the rescue of our economy in its current structure lulls us into thinking we don’t need to make major changes. We’re still a debt-based economy, perhaps now more than ever. That has to end, but as long as we think we can get away with just slapping another bandaid on it, we won’t make any fundamental changes. A New Zealand economist who comments on my blog thinks we’re headed for a major debt crisis that we won’t be able to resolve with politics as usual, and I think he’s right. If so, the pain of that will dwarf what we would have suffered now by forcing a major restructuring.

    3. We reinforced the “too big to fail” problem. If anything, we actually exacerbated it by pushing for even greater consolidation, through persuading the surviving large firms to buy the remnants of the failing ones. That makes the next crisis that much worse, because they’ll be that much too bigger to fail.

    4. Nobody got really hurt by a massive collapse. I mean executives. I’m all for gov’t bailing out mom and pop who lose their life savings (except neither Bush nor Obama did–pity the people whose GM stock is now worthless), but the execs have to really feel the pain of spectacular failure. By bailing them out we’ve created a perverse incentive–every exec knows if they’re big enough and their speculations don’t pay off, gov’t will bail them out. What’s really needed is for everyone on Wall St. to live with daily fear of getting too extended, of being too speculative. TARP has the opposite effect.

    5. This one can come across as rather curlish, and perhaps it is, but this success can create hubris in government about its ability to manage such crises. Historically it hasn’t worked out so well (think S&L bailout, for example). A teenage driver who manages to dodge around the crossing gates and not get hit this time is tempted to keep doing it. Have we really become better drivers, or did we just get lucky? There’s no solid economic or political theory that gives me encouragement on that score, nor does history.

    Yes, TARP did some real good. But are we just fooling ourselves and setting ourselves up for a bigger fall? I believe we are, and it scares the s**t out of me.

    Like

  17. mkfreeberg says:

    PLUS all of the hidden costs. Capitalism has become incrementally more pointless in America, nevermind how profitable it is & isn’t for this bracket or that bracket. And with pointlessness has arrived an unemployment rate much higher than it was when TARP was put into effect. Money is more than an asset, it is a message. Confuse the message and the market doesn’t work as well.

    Of course, I’m a Dunning-Kruger guy…so go ahead, doubt me. Darn it all, Ed. I just can’t sway you from this fanatical devotion you have to George W. Bush, the President who signed TARP.

    Hey remember how angry and upset PrezBO got, around the time of His inauguration…about the bonuses? Guess he’s going to have an about-face about that soon. He’s well known for admitting when He’s been wrong.

    Like

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