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TARP, and our Adventures in Wonderland, 2010

As hoped and predicted, TARP was quite a success, as this NYT story today recounts, and the government will break even, or even make a bit on the deals, which despite various flaws helped rescue the economy and save jobs and alleviate greater suffering.Yet, as the WaPo story shows, the program is wildly unpopular with the public and pols are running away from it. What kind of upside-down world is this? I suppose a large part of this, as with health care reform and Obama's "Muslim" faith, is about right-wing propaganda tainting something or someone so completely they can never recover, no matter what the facts.But it doesn't bode well for the long-term health of political discourse, it seems to me.

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Ah...the old stand by "right wing propoganda" which of course is at odds with the left wing propoganda found in this spin piece.Did TARP prevent some banks and financial organizations from collapse? Absolutely. BRAVO...everyone join Barney Frank and Nancy Pelosi in patting themsleves on the back.However, as a famous sports broadcaster is found of saying "...not so fast, my friend".TARP rescued bad managers and financial organizations from their own failures. I can bail out my grown children from financial mistakes too but does it treat the underlying bad behavior? More often than not, that answer is "no". I am merely "carrying them" until the next series of bad decisions.TARP, despite the profit, has come with significant negative costs. It has preserved the structure of the banking system in its current, over-concentrated, too-big-to-fail form. The risk managers and risky behavior are essentially still in place. All TARP has done is subsidize the exsiting system that ended in near failure. And one day that bill may come due, in the form of another costly crisis.TARP is a bandaid America - it rescued a failed system and then left it in place.

Darrell, not sure where the left-wing spin was -- in the post or in the news stories? You seem to agree with the facts about TARP. So not sure where the spin is. Certainly wider financial reform is good and necessary -- and has been opposed down the line by the GOP, if I recall. (Though I have doubts the Democratic measures go nearly far enough.) So what are you saying would have been better? Not to enact TARP, and then...?

TARP is a bandaid America it rescued a failed system and then left it in place.Darrell,Are you saying it would have been better to let the whole system collapse so we could start over? Or are you saying the government should have reorganized the whole system? If you think the economy is bad now, imagine what it would be if the system had been allowed to collapse. And if you think the government should have radically reorganized the system, where would the votes come from to do such a thing? Certainly no Republican would have voted for any such thing.

TARP was about avoiding catastrophe. The Financial Reform bill has been about fixing a broken system. It's dubitable that both could have been achieved in a single bill. We needed some distance to be able to gauge the problem (and the solution) properly. What are your thoughts on the financial reform package?

It does seem to me that virtually no effort has been made by the Obama administration or the Democrats to educate the American people about the economics of the financial crisis and what was done to cope with it. I do not understand this gross failure to communicate with citizens.

I thought the article and the above comments do a good job pointing out why TARP was necessary and why we all loathe it. I don't think there is anything inconsistent about resenting having to bail out an industry so richly undeserving of assistance.Wasn't TARP Bush Administration, though?

Yes, TARP was an initiative of the Bush administration, so this shouldn't necessarily be a left-right issue, though certainly most Republicans in both houses opposed it (though it did have what we might call bipartisan support -- not sure of the vote tallies -- anyone?)

The right wing did the same thing with Clinton but people were working, keeping their houses, gaining on their investments so they did not buy it. When people are not working they will look for anything. The other part is as it was in health care the democrats are not good at selling what they have accomplished. It is all about soundbites. So far Sarah Palin who is showing herself as a sleaze opportunist and others are winning the soundbite war.

C'mon David - this is a general article with no substance - show the statistics (the facts) - let's see the ledger - and don't count your chickens before they're hatched about AIG - the banks who were bailed out are more arrogant now than ever - they have cut credit and jacked up interest rates - that's how it would have been without TARP - so who was helped - TARP allowed us as a government to continue to spend, but we the people can't spend because we have no money - I would have liked to see the USA showing its greatness and surviving without TARP - Europe and Asia definitely would have floundered in this global economy without TARP - but we always seem to prop up the world and then NATO tankers are attacked in Pakistan.

Bill M has it right. when there was Clinton propriety the fear mongers pitch was muted. There was and is a 'right wing propaganda' machine. It is motivated by people who feel 'America as we know it, has been taken over' .They no longer were rewarded by the financial bubble where their house equity was a cash machine. This created an energy for them to blog, organize, and create fear well beyond their numbers.. How else can one explain how some sleazy and some other plain ignorant crop of Tea party candidates were able to chase the country club Republicans out of office. If they take over the House they will use the investigating power to smear more people. We ain't seen it all yet.

" The risk managers and risky behavior are essentially still in place. All TARP has done is subsidize the exsiting system that ended in near failure."Darrell --I was with you up to the above. We are not out of the woods yet by far. However, I'd say the action taken was more like a touniquet, simple effective, but not solving all problems. Yes, the same managers were put into place, but Congress -- liberal and conservative -- had to act immediately and there was no time to remove the bad guys and put good guys in. (Are there any good bankers? Ouch. You can see where my prejudice lies!) Further, even conservative economists now know more now Wall Street works than they did in 1929. Even Alan Greenspan, the former respected chairman of the Fed, said (and I heard him myself on TV) that he was wrong -- that the market does not always correct itself. I admire him enormously for admitting his mistakes. Few people are big enough to do that, and his mistakes (lending too much money too fast) were humongous.Congress has restored some of the regulation of those financial factors, so we (except, of course, for the people out of jobs) are in better shape than before because we are wiser than before. At least we should be wiser. But it requires that we also admit our mistakes, our going along with the popular but contradictory notion that you can borrow your way out of debt problems by ignoring the problems (i.e., not paying off credit cards and not paying taxes). These are bitter pills for a people who likes nothing more than to spend money, but they must be recognized and swallowed.

jim s., the accounting as it stands shows that the program will cost nothing like the $700 billion figure, and is likely to break even. http://www.nytimes.com/imagepages/2010/10/01/business/01tarp.html?ref=bu... So I'm not sure how you deal with these figures.

While we are blasting the investment banks, insurance companies, and Wall Street, we should remember that huge amounts of retirement money was and is still invested in banks, insurance companies and Wall Street. We didn't complain as they made lots of money, And most of us were surprised when the melt down happened.What we should have learned is that we all need to put some effort into learning some economics. By that I mean that we shouldn't wait for lessons in it from the Pres. of the U. S. That isn't his job, except to confirm how he sees what happened and to explain his plans for dealing with it. It is up to us to understand what he is talking about. This is my conservative side speaking -- the side that says Do not expect the government to do everything for you! If I can understand the basics of economics, then it really isn't all that difficult. And we should insist that it be taught in the high schools as a requirement.

David G, thanks for highlighting this good news. If TARP breaks even or turns a profit, then surely it would be in the running for one of the most successful government programs ever, anywhere.It's worth reiterating that TARP has been bipartisan, passed by both Democratic and Republican legislators, and administered by successive Republican and Democratic administrations.Would that Washington worked like this more often.

I think David's point about the continuing demise of public discourse is the real kicker here and is demonstrated in the comments.Defenders of the righ tare apologists for ideology not civil discourse and that, I submit, undermines the patriotism they so loudly wrap themselves in.On NPR this morning, the local GOP defender of the Reppublican gubernatorial candidate is quoted in defending the attack on the NY Post reporter by sayying "this is war; there's nor room for civility."That strikes me as the mindset -ideology trumps intellectual honesty every time!

Jim Pauwels - where are the facts that TARP will break even or turn a profit? Is it a secret program? Can you name one government program ever that broke even or turned a profit?

jim. s -- Like we say at the tabloids, "Never let the facts get in the way of a good story!" What is your evidence against the evidence presented today?

As Chait noted today, over at the notorious leftist outfit the Frum Forum, writes a post titled, "AIG Exit Plan Proves Obama's No Socialist":http://www.frumforum.com/aig-exit-plan-proves-obamas-no-socialist

DavidThe issue is considerably more complex than TARP. There at least two overarching matters which seem to be at the heart of the public's anxiety and have nothing at all to do with right wing propaganda. The first is the widespread concern regarding the magnitude of annual deficit. It was extensive and irresponsible under Bush and is equally extensive and irresponsible under Obama. The current administration is no different than the last. Both spend on wars, social programs and economic bailouts without raising taxes to finance these things. People have every right to be worried. They sense that if the deficits are not brought under control by reduced spending (such as may be achieved getting out of Afghanistan) and higher taxes (such as may be achieved by bringing the top marginal income tax rate back to 70% where it was in the early '80's), then it is a certainty that the debt will be monetized-said differently the debt problem will be solved by a rapid and high rate of inflation. The public is not stupid. They know that the burden of high inflation falls mainly on the middle and lower classes while the rich always escape.The second issue is what's hitting people's pocket books right now. Not just the people who are unemployed or underemployed, but the far larger element of the population who are fully employed or retired. The resentment and even anger has to do with the Federal Reserve and Obama administration's manipulation of short term interest rates which are now near zero. Middle class Americans have more than $7 trillion tied up in money market mutual funds and almost as much in bank and other fixed income accounts. The zero rate means that each year the middle class is losing somewhere between $20-$40 billion in interest income. For working people this comes out of their retirement savings. For retirees, this comes out of their current income. Once again, people are not stupid. They know that these low rates are a way to transfer wealth from themselves (the middle class) to the likes of CitiBank and Goldman Sachs. The near zero cost of money to the financial institutions produces high profits-a portion of which are distributed to their executives and employees just as was occurring before the crisis. Is it any wonder that people are angry?Right wing propaganda may fuel the flames, but there is a hard reality affecting people that for some strange reason politicians and pundits simply do not understand or simply do not have the courage to address.

David - you use the line often regarding facts - that it is written in the New York Times does make it a fact no matter how hard you want to push the liberal agenda - I know the Times is gospel to you - what evidence is in the article that shows we will break even or make money other than the New York Times saying so - I say the opposite - the preponderance of evidence is on my side since you have not identified a government program that ever broke even or created a surplus.

please add the "not" after "does" in the first line -

Charles Ladner: I don't think the issue is much more complicated than TARP, though right-wing talking points would make it so.jim s.: I'm not citing the Times or any other outlet as gospel. Just referring to the -- I admit -- government-released figures. But if the paranoid style is alive and well, I guess alien abductions aren't so far-fetched. Weird, I thought this post could prompt some discussion of the anti-intellectualism and anti-rationalism in American culture. Instead it underscores that current.

If TARP breaks even or turns a profit, then surely it would be in the running for one of the most successful government programs ever, anywhere.Of course, that doesn't take into account the potential cost of the disaster that was averted by such intervention. A failure of AIG alone would have undermined economies world-wide. I often wonder how close we came to a total meltdown of the global financial system.

The zero rate means that each year the middle class is losing somewhere between $20-$40 billion in interest income. "Mr. Ladner --I don't understand how this works. Could you explain, please.

The WSJ has an article today on TARP and AIG (which was partially funded by TARP). The headline (p.C1) says, "AIG, U.S. Agree on an Exit Deal; Making it Work Will Be Tougher". The article says it expects that the US will not recoup everything. However, it has already recouped 100% of the money from the Targeted Investment Program and and the Legacy Security Public-Private Investment Program, so you could say those were two successful government programs. The Capital Purchase Program [for the banks] has recouped about 3/4 of the program so far. The auto industry monies are not doing so well -- only 11.2 B of 79.7 B have been repaid. And there is still AIG . Both AIG and the gov't. are optimist that the US won't lose money on the deal.

AnnYou asked how the zero rate is hurting the middle class. Well, there is about $7.0 trillion in money market mutual funds-almost all of this, is held in the 401K and direct accounts of middle class people. In addition, there is about $7.5 trillion of deposits (FDIC insured) in banks and savings institutions. This too is held largely by middle class people. (see Charles Schwab article in today's Wall Street Journal). The total of these two asset classes is $14.5 trillion, and if you assume that the short term interest rate, if not manipulated by the Fed, would find its historic market equilibrium of 1.5% - 3.0%, then the lost annual interest income is in the range of $21.8 billion to $43.5 billion.The impact of this policy created and managed by the Federal Reserve and fully supported by the Obama Administration, is to have implemented one largest wealth transfers in U.S history- from the middle class to the banks and their bonus babies.David, I know you find it hard to believe that voter discontent is not necessarily ideological in its origins, but rather a function of people's economic situation. However, I would repeat that people are not stupid. They know what is happening to them, they understand the unfairness, and they know that it is the Obama administration that is bringing this upon them. The success or failure of the TARP program or the rantings of Glenn Beck and his crew are irrelevant to the vast numbers of people who, rightfully or wrongly, perceive that they are in the grip of an administration determined to destroy their economic well being.

Why is the fact that TARP will "almost break even" or even "make a little profit" considered cause for rejoicing? We lent out $700 billion for a few years and we're getting it back...so what...a businessman would still consider that a bad deal. Can you imagine the risk premium a private individual with $700 billion would have extracted? He/she would have literally made the (mostly wealthy) people who were the primary beneficiaries of this sign over their first-born sons, and grandsons, and so on to the 10th generation. Instead, we are supposed to be happy because we're getting "almost all" of our money back, while the mega-rich whine and complain that raising their tax rates to Clinton-era levels is comparable to the Nazi invasion of Poland. Wake up...we got hosed, and we're still getting hosed.

Charles --Thanks for the explanation of the lost interest each year. But about the fairness issue -- it seems to me that the very people who have their investments in those 401Ks and bank investments are in large part the very people who bought houses that they couldn't really afford and who ran up their credit card debt. These factors loomed large in the melt down. So aren't these people partly responsible for their own plight?I'll grant you that depression babies like me have little sympathy for people who squander their money, not save it. And perhaps that is a lesson one learns only by hard experience. But I think the fact remains that the melt down is not totally unfair to the spend-thrifts. Capitalism is a machine with very deterministic laws, so it performs well or badly depending on what we use it for.

Now that I think of it, I wonder what percentage of the Tea Partiers were savers rather than squanderers? Are they really mad at *themselves* and have transferred their anger on to the gubment? Or did they spend wisely plus save and now are rightly outraged? Anybody got any figures?

How far has the Obama Admin. financial intervention to overcome the Bush crash come? Exactly 48 days [March 9 2009] after Obama took over, the Dow bottomed at 6500. Obama administration brought both calm and initiatives. And they are working, unless you are part of the right wing propaganda machine. Dow is now approaching 11,000, almost a 70% increase. When unemployment, a lagging indicator gets to 8% next year, 2012 Dem. re-election will be insured.

" we are supposed to be happy because were getting almost all of our money back, while the mega-rich whine and complain that raising their tax rates "MEP --These are two different issues. Yes, we should rejoice we're not in a depression. But we also have a right to be angry that the some are profitting outrageously from the means to avoid a depression. Why are the new regulations not good enough? Well, we can blame it all on the huge majority of Republicans who refused to take reasonable actions, but we also need to ask: where do the nay=sayers get their power from? I say the fundamental problem is the requirement for 60 votes to break a fillibuster. That is not part of the Constitution, it's only a Congressional rule. That 60 figure must be reduced.

AnnAs to the fairness issue, I too have little sympathy for those who bought houses that they could not afford only to see the market value of their houses fall below their mortgage value. However, I doubt that there is much commonality between this group of people (the financially reckless), and those who are either savers or retirees. Certainly the financially reckless are well represented among the Tea Partiers, but I suspect that it is the much larger group of savers and retirees-mostly silent-whose issues are totally ignored by this as well as the last administration, who in their anger and frustration will determine the outcome of the upcoming election.

"However, I would repeat that people are not stupid. They know what is happening to them, they understand the unfairness, and they know that it is the Obama administration that is bringing this upon them. "Pure rubbish. People are very stupid, and a prime example is the number of middle and lower-middle class people who have bought into the idea that the Federal Reserve is the cause of their economic problems, as you are trying to argue. There is nothing in Charles Schwab's article that even attempts to make the argument that the middle class is being hurt by low interest rates, as it would be such a laughably disingenuous argument that even readers of WSJ would guffaw. The reality is that "close to half of the American population does not have any net worth to speak of." http://economix.blogs.nytimes.com/2010/07/30/are-we-a-nation-of-property... you cannot figure out how higher interest rates would hurt those people, then you are beyond help.

MEP"pure rubbish"..."disingenuous"..colorful language! However, adjectives are no substitute for facts. "Close to half of the American population does not have any net worth to speak of." Correct. This means that more than half of the population does have some net worth and it is this segment to whom my observations apply. These are the savers and retirees. These are the people that are damaged by interest rates close to zero. Many of these people-especially the retirees- depend on interest income to finance their daily needs.These people are not happy and politicians ignore them at their own peril. As for Schwab's article, here is part of what he says about the impact of near zero interest rates on savers (i.e. the middle class). "The Fed's super-loose policy has driven down the security and spending power of savers, particularly those in retirement who played by the rules during their working years and now depend on earnings from their savings for a decent quality of life." You should read the entire article with care. You will learn a great deal. not only about how the near zero rates hurt savers, but also how these artificial rates serve to reduce lending, thus hurting all borrowers, small business and ultimately employment levels. Schwab calls these rates "counterproductive" and I agree.

Charles and MEP -- We old folks are generally well aware of what we get from government programs. I suspect that the coming elections will be determined by who votes more heavily -- the younger savers (Tea Partiers) who have yet to see any government checks or the non-rich retiree-savers who get both Soc. Security and Medicare. I don't see the latter voting Republican at all, at all. And the children of old folks who are totally dependent on Soc. Sec. and Medicare will also want those programs to continue.

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About the Author

David Gibson is a national reporter for Religion News Service and author of The Coming Catholic Church (HarperOne) and The Rule of Benedict (HarperOne). He blogs at dotCommonweal.