Andrew Sorkin used his Dealbook column to tell readers that the 2008 bailout "worked." That is of course true if the definition of success is to keep the Wall Street banks in business and operating as they had prior to the crisis. It is far less apparent that the bailout worked from the standpoint of the economy as a whole.
The piece presents comments from then Treasury Secretary Henry Paulson expressing the concern that if bailout money had been tied to real conditions, such as a plan to break up the large banks and real restrictions on executive compensation, then the non-troubled banks would not have taken it. The obvious response would be "who cares?"
If a bank that wasn't troubled didn't take the bailout money, there is no obvious reason that should have bothered anyone. For some reason media outlets have not chosen to discuss the 180 degree shift in policy between the TARP bailout in the fall of 2008 and the stress tests in March of 2009. Under the TARP bailout, Paulson tried to conceal the condition of each bank insisting that all the large banks take bailout funds whether they needed them or not.
By contrast, the stress tests were ostensibly designed to expose the condition of each bank, showing the extent to which it was vulnerable as a result of the collapse of the housing bubble. If the stress tests were the right policy, then the TARP secrecy was the wrong policy.
It is also important to note that TARP was actually a small portion of a much larger bailout. The Fed made trillions of dollars of short-term loans available to banks at below market interest rates. The Federal Deposit Insurance Corporation also allowed for large amounts of long-term borrowing. In addition, the government's actions made the implicit "too big to fail" policy quite explicit. Investors came to accept that in the post-Lehman period the federal government would not allow another major bank to fail.
All of these forms of government assistance to the banks could have come with conditions. Most, if not all, of the major banks would have had little choice to accept them since the alternative would have been bankruptcy. Paulson and Democratic leadership in Congress decided not to impose any real conditions on access to bailout funds, a policy continued in the Obama presidency.
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