No program to bail out big banks was ever going to be popular. And, with a $700 billion price tag, TARP came with some serious sticker shock. The right hated it, the left hated it. It basically transformed Ron Paul’s Tea Partiers into a national movement. But, you know what? I supported the bill when it was proposed, and I supported Geithner’s Plan to transform it. And I’m feeling vindicated right now, because it’s looking increasingly likely that the TARP program will turn a profit for the taxpayers. Officially the administration is still being cautious and saying the worst-case scenario is that we’ll lose $60 billion. But that’s just political cover. If we sold all our AIG shares at today’s price, we’d be in the black.
The foreclosure element of TARP has totally failed, and that’s a major, major problem. But the bill probably averted 20% or higher unemployment, the loss of the auto industry (or at least its strong unions), and the collapse of our financial system. And it did it without it ultimately costing the government any money. That is a remarkable accomplishment. It’s almost astounding.
However, it’s pretty hard to get any credit for it when the landscape is still pitted with the wreckage of the crash. We still haven’t figured out a way to patch the hole that let all the air out of balloon. How does reinflating the balloon even make sense when it was all based on an illusion?
So, people aren’t impressed that the banks are profitable again. In fact, that just pisses them off more, because the people haven’t recovered. Their mortgages are underwater. They’re unemployed. They aren’t profitable.
Nevertheless, those who voted for TARP made the correct decision. Those who wanted to nationalize the banks in the early days of the Obama administration were wrong. If they had done that, we would have wound up eating most of the money used in TARP instead of recouping our investment in two short years.
Here’s a review of my writing from the Spring of 2009.
The False Choice on Nationalization
A Look at Jane Hamsher’s Argument
Another Post on the Same Subject
From the last of those, a refresher on the mind of Paul Rosenberg (a moran):
Let’s start with a simple premise. If you are being critical of the Geithner Plan and calling for nationalization in its stead, the criticisms that you have about the Geithner Plan should not be equally true of what happens when you nationalize. There should be things that turn out more favorably or that involve less risk in nationalization. Nationalization should be a better deal in some sense. If all the criticisms you have about Geithner’s Plan are basically true for what happened with IndyMac, then there’s a problem with your analysis.
Now, in the case of IndyMac, the taxpayer took an anticipated $10.7 billion haircut because, in part, they are on the hook for 80% of future defaults on shitty mortgages. Under Geithner’s Plan, the taxpayer is on the hook for 85% of the toxic assets. So, that’s a five percent difference. In the case of IndyMac, the taxpayer provided (presumably) some sweetheart financing in the form of a $9 billion loan. We hope, but are not guaranteed, of getting that money back.
We nationalized IndyMac and we have no potential upside at all. There is no scenario where the taxpayer doesn’t lose billions of dollars on the IndyMac deal. In the Geithner Plan, we make money if the investors make money. In both cases, we assume most of the risk and we provide most of the capital, and we give extremely favorable terms to the investors.
Now…you might complain about both scenarios. You might argue that IndyMac was done wrong and we can do future nationalizations in a way that doesn’t lose the taxpayers $10.7 billion dollars. But if we nationalized a bank that is fifty times bigger than IndyMac and we lost the same percentage as we did on IndyMac, that would be a $535,000,000,000,000 loss. You can double that if we nationalized two banks of that size.
I don’t want to make a false argument that we will necessarily lose that kind of money by nationalizing or that we couldn’t have done better with IndyMac, or that everything would move according to scale, but we have to think about these things more carefully. There could be perverse incentives built into the non-recourse loans that are provided in the Geithner Plan and those incentives could result in a loss of money to the taxpayer. There’s risk involved in this plan. But to suggest that there isn’t staggering risk and unfairness in any conceivable nationalization plan is just wrong and I will keep pointing that out as long as I see the same arguments coming out of Left Blogistan.
So, yeah, we’re better off because we didn’t nationalize the banks. That doesn’t make it any easier to be unemployed or have your house in foreclosure, but at least we got our money back from the banks.
