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Home Publications Blogs Beat the Press The Cost of the TARP: One More Time

The Cost of the TARP: One More Time

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Sunday, 03 October 2010 15:07

Since some folks are determined to spread nonsense about the TARP, I suppose it's necessary for those of us not on Wall Street's payroll to keep trotting out the truth. The basic points of the TARP backers are:

1) it didn't cost us anything;

2) it was necessary; and

3) Dodd-Frank ensures that it will never happen again.

 

Claim 1 is just absolute nonsense. We gave the banks trillions of dollars worth of loans and loan guarantees through the TARP, the Fed and the FDIC at way below market rates at the time. It is true that most of this money was paid back, so the government got back what it lent, but that does not mean there was no cost to the taxpayer.

Without TARP and the other government bailout programs, Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, and many other large banks would have gone bankrupt. Their top executives would be unemployed today and their shareholders would have lost hundreds of billions of dollars in wealth, as would their creditors.

Thanks to their access to below market credit in their time of need, courtesy of the taxpayer bailouts, the Wall Street executives are still pocketing tens of millions a year and the banks are again making record profits. Had the market been allowed to work its magic, this wealth and income would have been available for the rest of society. The financial sector will continue to be a drain on the rest of the economy because the government saved it from the consequences of its own recklessness.

 

Claim 2 implies that the economy would have collapsed absent the TARP. It assumes an absurd counter-factual: that the government and the Fed would have allowed the banks to collapse and then done nothing in response to boost the economy. Of course that would have been a catastrophe, but it is simply a lie to claim that our options were either doing TARP or never doing anything.

There is no reason that we could not have let the banks go down in the cesspool of junk loans that they had fostered and then flooded the system with liquidity after the fact to boost the economy. This is the serious alternative scenario -- not the permanent do nothing scenario that TARP proponents have created.

 

Claim 3 ignores the fact that we have bigger too-big-to-fail banks than we did before the crisis. Most of the largest banks are larger today than they were before the crisis because we allowed a series of major mergers (e.g. J.P. Morgan Chase with Bear Stearns and Bank of America with Merrill Lynch) as a result of the crisis. It is very unlikely that the future regulators will be any more willing to tolerate the collapse of these giants than was the 2008 crew.

Resolution authority may give the regulators more flexibility in a crisis in the future than they had in the 2008 crisis, but the big problem was that they wanted the creditors paid off, not that they didn't. For example, the Treasury Department/Fed made good on 100 percent of AIG's debts, instead of trying to impose haircuts on its creditors. There is no reason to expect regulators to act any differently in future crises.

In short, the TARP opponents are absolutely right. TARP was an unnecessary giveaway to the Wall Street crew that was responsible for the financial crisis.

Comments (8)Add Comment
...
written by izzatzo, October 03, 2010 7:08
Ok Mothersticker, this is an Eff-Up. Give me all your money or I'll freeze all your financial accounts. Move it before I put a stop on that car and college loan. Everything in the bag - wealth, income, home, cash on hand, personal valuables, job, retirement and Social Security. Everything.

What's the alternative? On whose authority? What are you, a stupid liberal? Read the stick-up note fool. It's signed by Paulson, Bernanke and the Boy Monarch as a Critical Rescue of Last Resort. I'm not a crook. I'm here to save you. From me.
TARP 8500 BILLION
written by CLARENCE SWINNEY, October 04, 2010 9:17
Tarp 700B but but but
In 2008 Bush Adm. promised 8500B in assistance via grants, guarantees etc.
details
google kathleen pender + bailout

clarence swinney
Middle Class Rape
written by CLARENCE SWINNEY, October 04, 2010 9:22
Wall Street Of America Formerly United States of America

Democrats are nuts for not broadcasting it.
1945 to 1980 Great Middle class Years
Each percentile gained almost evenly, percent,in Income-Wealth

1980 to 2009
Redistribution of Income and Wealth
1980--1% owned 20% Total Financial Wealth
1989--1% owned 36%--an 80% increase in 8 years
Reagan 750B Tax cut plus market increase

1980-2009
1% Income grew by 281%
Middle Class Income grew by 25%
Third world stuff

2001-2009 1% took 67% of Total Individual Income Growth
Bottom 90% got 10%
Third World stuff

2008
1% owned 43% Total Financial Wealth (1.400,000)
80$ owned 7% (120,000,000)
1% got 24% of Total Income in that year.

Redistribution from Republican Free Market Ideology
Enrich The Rich catch the crumbs below
They sell-"Rising (boats) Wealth lifts all boats (classes).
Bull! Third World Results

From 1980
3 Conservative Presidents
18 Years a Conservative Senate
12 years a Conservative House
6 years a Total Conservative Control

JOBS--99,000 Net New Jobs Per Month
Carter + Clinton got 222,000 per month over 12 years.

1% took most of gains. 1,400,000 rich.

Debt increased by 9000B under them. From 1000B in 1980
8 International Conflicts $$$ military industrial loved them.
137 investigated-charged-convicted under Reagan
Many found guilty. Most $$$ Fraud charges
Third world stuff

2000-2010 Worst Decade
Jobs Creation almost non existent. 31,000 per month
Worst since Hoover
Dow--Wow!! 11,720 in 2000 10,700 Today Back is not forward
Down is not up.
Housing Debacle hurt millions for many many years
Financial Debacle enriched the already rich and robbed millions.
Stock Market Value about 50,000 Billion.
Derivatives Casino had 600,000 Billion in play world wide
Billionaires created Billionaires Lost.

Gambling Palace.

Rich went into Gambling Frenzy so many millions were being made in such short periods.

Rich stopped investing in Stocks, an asset, and into one on one betting. Many Rich went down. Many Hedge Funds closed.
Where is Carlyle group which gave largest 8.5B dividend payout in history in 2008?
Where is Warren Buffett hiding? Five straight quarter losses.
Bet on em Warren. He did. They is da Great Weapons of Mass Destruction.

Recovery? Many Many years. If WSA is not stopped from Gambling
Never Never a Revolution on Main Street.

VALUE ADDED INVESTMENTS JOB CREATED INVESTMENTS
1% PAY FAIR SHARE OF TAX BURDEN
2008 Tax Return Investigation by ctj.org showed
1% paid 30% of Total Income in Federal-State-Local Taxes
Middle 20% paid 27% almost the same.

That is wrong.

Top 10% Must pay 50% of Total Income not 30%

There is not enough Income in bottom 80% to support our government

It was not just Growth in Spending
It was also Loss Of Revenue which allowed rich to get Ultra Rich.

1990 was GREAT Decade
1999 Glass Steagall Voided. 2000 Bill allowed WSA big time free GAMBLING
Those two created our Disasters.
Plus Bush mob ideology of Free Market knows best. Let em go.
Reagan + Bush Deregulate a disaster for Middle Class.

DARWIN--Strong Devour Weak
RICH--Devour ALL OTHERS
no unions means no power for labor to fight robber barons and huge CEO payoff sat workers expense

When 7% or 120,000,000 of 140,000,000 workers own 7% of Total Financial Wealth that 7% has NO POWER. NONE except a Vote.
Yet! That 93% control the Media and can suggest the 7% to do their bidding by lies. Plus sending our jobs overseas with no dissent

EXAMPLES
Health care Reform--For decades 70% polls said Reform That Expensive Sucker. 135M spent by Insurers promoting LIES via organizations such as Tea Potty, Americans For Prosperity
and 70% said Do Not Reform that Expensive Sucker.
Same with Financial Reform. 70% for Reform. Now mute. silent.
100 M + spent on Lies.

Reminds me as to how susceptible are the people.
Reagan invaded Grenada.Polls all 70% against it.
He went on TV from Oval Office.
He said: "We have whipped the Vietnam Syndrome and got Communism on the run". Then, 70% approved the invasion.

Americans are not intelligent

It will get worse with Internet and 24/7 Talk Shows unrestricted.
FAIRNESS DOCTRINE bring it back. You attack me I get rebuttal time.

Fair.

Thanks for your writing excuse length of my rant.

clarence swinney
burlington nc
cswinney2@triad.rr.com
many posts at google: clarence swinney
+ wreckonomics--+ Praise Clinton + rape Of Middle Class
+ democrats create wealth and jobs + Bush lies + Bush waffles
+ clinton terrorism + how to identify a Republican
+ clinton vs reagan + carter vs reagan
...
written by tinbox, October 04, 2010 9:52
Pretty good rant above from Mr swinney, but the post was about TARP....
The TARP was passed by Democrats in Congress. Leading lights like Paul Krugman and Brad DeLong advocated support for the legislation by Democrats. Sad, but true.
...
written by spencer, October 04, 2010 2:05
You said:Thanks to their access to below market credit in their time of need the Wall Street executives are still pocketing tens of millions a year and the banks are again making record profits. Had the market been allowed to work its magic, this wealth and income would have been available for the rest of society.

I disagree, the wealth would not have been transferred to the rest of society. Rather it would have been destroyed and/or vanished into thin air as financial markets reduced the value of their stocks and other financial assets to near zero.

That is why intervention was the lesser evil-- it was better than letting the market destroy that wealth.
Were not the bank repayments made with other government programs.
written by David, October 06, 2010 10:49
Yes, the Wall Street apologists are touting the fact that most of the TARP loans have been repaid. But wasn't this a transfer of funds from one government program to another? Didn't the banks use money paid to it from other government programs to consumers meant to reduce foreclosures to their homes?

Not to mention, the CEO's wanted to repay these loans as fast as possible so the government couldn't complain about the big salaries and bonuses that they were giving themselves? They wanted to eliminate the possibility that the government would reduce CEO and management salaries and bonuses like they did in the case of the Auto companies?

Please enlighten us...if the loans were paid back by revenues from other government programs, then they really were not "paid back"....

Thanks!
...
written by gordon, October 07, 2010 6:27
The words you are looking for are "opportunity cost".
"into thin air"
written by beowulf, November 05, 2010 3:54
Rather it would have been destroyed and/or vanished into thin air as financial markets reduced the value of their stocks and other financial assets to near zero.

"Destroyed and/or vanished into thin air", great scott, sounds like the work of Lex Luthor! Except no dam would crumble nor building fall, the US Government could just wait for the financial markets to bottom out, then write a check "out of thin air" to buy up everything for sale at market price and then put these assets into the Social Security trust funds.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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