The American Spectator : In Defense of Bailout Inconsistency

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In Defense of Bailout Inconsistency

By Brandon Crocker on 2.27.12 @ 6:08AM

Unlike Santorum, Romney understands the difference between bailing out Detroit and bailing out "Wall Street."

Almost all rules have exceptions. This is true because the real world is a complex place, more complex than theory often allows. And this is why, to quote Emerson, "A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines." Campaigning in Michigan, Rick Santorum has sought to bolster his conservative bona fides, declaring his own ideological consistency in opposing government "bailout" plans for both the automakers and of "Wall Street," and contrasting that to the "inconsistency" of his rival, Mitt Romney, who opposed the auto "bailout" but supported the Troubled Asset Relief Program (TARP), portrayed by Santorum as a bailout for Wall Street and the big banks. In failing to understand the difference between TARP and the auto bailout, Senator Santorum betrays a foolish consistency.

All American conservatives, myself included, disdain government meddling in the private sector. From a practical perspective, it is usually counterproductive and wasteful (Solyndra, for example). From an ideological perspective, it is rarely justified as a necessary and legitimate application of government power, and is almost always a dangerous precedent, inviting ever more and greater infringements on personal liberty and the workings of a free market. But this does not mean that government intervention is never, ever an appropriate option.

The Obama administration's auto bailout plan that both Senator Santorum and Governor Romney rightly opposed is clearly an example of unjustified, dangerous, and (despite all the hoopla from the media regarding its supposed "success") counterproductive and wasteful government action. Proponents of the plan argue that without the government bailout, tens of thousands of GM and Chrysler workers would have lost their jobs, and thousands more employed by suppliers to the automakers would have lost theirs, too. Instead, all these jobs were saved, GM is now profitable, and the cost to taxpayers is minimal. The problem with this justification is that it is wrong on every point. The government bailout did not prevent GM and Chrysler from going into bankruptcy. And just as if they had gone into bankruptcy without the government plan, GM and Chrysler continued to operate while they reorganized. The essence of the bailout plan was not "saving jobs" or a portion of the dwindling U.S. manufacturing base, but rather paying off a Democratic constituency, big labor, by forcing a pre-bankruptcy deal whereby the holders of senior debt had their legal positions stripped from them so as to hand whatever value remained over to the UAW and the UAW's pension plan. Chrysler got over $10 billion in taxpayer assistance, was taken over by Fiat, who somehow then got a $3.5 billion loan from the U.S. Department of Energy. The Obama administration gave GM $60 billion in taxpayer cash -- $10 billion in a loan and $50 billion as an equity stake (at a highly inflated value) -- plus another $15 billion in tax benefits. GM has since paid back the $10 billion loan. Hurray. For taxpayers to be made whole on their equity investment, the price of GM stock will need to double.

So how much did the auto bailout cost? It's hard to say. The White House estimate is $14 billion, the CBO estimates $20 billion, but it could be $40 billion. And the benefit? According to Paul Roderick Gregory of the Hoover Institution, perhaps 4,000 auto related jobs more than what would have resulted from a traditional bankruptcy program. GM and Chrysler would still be around in reconstituted form. And the overriding imperative that demanded government intervention? Nothing more than coming to the aid of a narrow political constituency.

Is Rick Santorum right in portraying the TARP program for Wall Street and the banks as no different than the bailouts of GM and Chrysler?

Unlike the auto industry, the financial industry directly impacts almost every meaningful business enterprise in the country as almost every meaningful business relies on credit for its own operations or on the credit supplied to its customers. Whereas the auto industry bailout supporters argued about the ripple effect that auto plant closures would have had on the relatively small universe of auto parts suppliers, the finance industry is a supplier of a key component to almost every other industry in the country. As an old accounting professor of mine once put it, money and credit is the blood of the economy. You may be a great guy, but without blood, you're in some serious trouble. And that's exactly where the U.S. economy was at the onset of the financial collapse in the fall of 2008.

Everyone knows about bad real estate loans, securitized into pools sold off to investors as "AAA" credit investments, insured by giants like AIG (with pitifully low reserves), all of which came crashing down as the real estate market cooled and debtors in way over their heads, with no way of refinancing started to default left and right. All of a sudden banks and other financial institutions discovered that large portions of their balance sheets were made up of securitizations of unknown but dubious value, trading in some cases at 30 or 40 cents on the dollar at fire sales at distressed financial institutions, and due to "mark-to-market" accounting regulations they had to start taking massive write downs of their assets, putting their capital ratios out of whack (indeed making some institutions insolvent), resulting in not only a stoppage of lending, but the need to shrink the amount of outstanding loans (a process known as deleveraging), effectively reducing the money supply.

Less known, and what really spurred the Federal Reserve, the Treasury Department, and Congress to dramatic action, was what happened in the commercial paper market in the wake of the Lehman Brothers collapse in September 2008. Lehman was a big supplier of corporate paper (short-term loans to commercial borrowers for everything from working capital for inventory to gap lending to meet payroll when collections of accounts receivable are slow), which in turn is one of the primary assets in which money market funds invest. After the Lehman collapse, for the first time ever, people lost money in money market funds, which were supposed to be a "safe haven." A panic ensued, the electronic equivalent of a run on banks. Within days, the money market funds were hit with redemptions of $500 billion -- more than 25% of the market. As a result, for a few weeks there was almost no available supply for short term commercial paper. The market was frozen. Market theory suggests that as interest rates rose to try to attract capital, equilibrium would be achieved. But with panic keeping money on the sidelines, it is difficult to say just how long financial markets would have been frozen and just how long the U.S. economy would have been deprived of its blood. Without credible action by the Fed (supported by the Treasury) to end the panic, the damage to the economy could have been considerably worse than it was. Panic begets panic, and failing financial institutions take down other, healthier institutions, with them as the financial industry is based on leverage.

Yes, the U.S. economy has survived financial panics before (recessions and depression used to be called "panics" precisely due to their source). But all indications were that 2008 could have been as bad as anything we had ever seen. As Milton Friedman chronicled, the Great Depression was in large part the result of a similar collapse in the money supply, as the Federal Reserve failed to stop the domino effect as bank after bank failed. In 2008, the Fed took dramatic action and stopped the panic. The deleveraging process continued, and will likely continue for a while, but in a more orderly and less destructive fashion. TARP was initially envisioned as a way to buy up "toxic assets" to get them off of banks' books so that banks could start lending again with cleaner balance sheets (and the Fed possibly making money selling the assets, bought at a deep discount, as conditions improved). A big part of the plan, however, quickly turned into massive capital infusions into the banking system in the form of purchases of preferred stock. Since time was of the essence, this was seen as the quickest way to stabilize the financial industry rather than to figure out the complexities of buying and selling asset pools.

Such direct investment in U.S. companies was nearly unprecedented, and certainly scary, though not as scary as the wholesale nationalization of banks that many were advocating. Calming the markets, and even taking over unhealthy financial institutions, is clearly within the role of the Federal Reserve, but the massive interventions, including equity investments, of 2008 and 2009 were pushing the envelope. In the end, most of the direct "bailout" aid was repaid, with interest. Though it is tangled given that much of the auto bailout was allocated through TARP, the numbers are that of the original $700 billion authorized for TARP by Congress, $414 million was disbursed, $124 billion remained outstanding at the end of 2011, and the CBO estimates losses will be $14 billion, exclusive of auto bailout losses. (Though not a part of the TARP program, the Federal Reserve does currently hold $850 billion of Fannie Mae, Freddie Mac, and Ginnie Mae mortgage backed securities, which could be a source of future losses, but those mortgages already carried at least an implicit government guarantee.)

Did the situation justify such action? It is a reasonable point of debate. Certainly the specifics of some of the actions taken were questionable (as is almost always the case with government actions). But in the final analysis there wasn't much of an alternative to some form of aggressive action by the Federal Reserve and the U.S. government constituting some sort of "bailout." The unique nature of the financial industry makes its rescue different in kind from the bailout of the auto industry. That may not satisfy an ideological purist, but whereas ideology can point you in the right direction, in a complex world it can also be a straightjacket if you let it, and sometimes ideological consistency can, indeed, be foolish.

About the Author

Brandon Crocker is the chief financial officer of a commercial real estate development and management company in San Diego.

Letter to the Editor View all comments (56) | Leave a comment

Bill Hussein O'Stalin| 2.27.12 @ 6:29AM

You bring up some good points although I felt all the companies including Goldman Sachs should have gone through the bankruptcy process. Would it have been painful? Well, it's still painful and there is growing evidence we are headed for another recession.

However, one fact your article does not address, and the main stream media tries to ignore or cover up, is that the auto bail outs remain expensive in many ways.

The most glaring is that the taxpayers are still on the hook for over 50 billion, not the 25 billion you see the press trying to peddle.

The second issue is that investors were summarily wiped out without the court process. The investor equity was simply done away with and that wealth was transferred to unions who now hold 17% of GM.

It proves that we are no longer a nation of laws but government powered thugs like Obama who can simply change laws and rules on a dime.

If anything explains the stubborn economy that's probably it. No one trusts the system anymore and until that trust comes back expect more of the same, or worse.

Lyneuss Fields| 2.27.12 @ 10:39AM

Ah yes, lets reward bad behavior and bail out Wall Street. Who's buying this "Crocker" shit?

JJ| 2.27.12 @ 12:08PM

So the author is buying into Bush's going against Capitalism to save Capitalism meme. Paulsen should have been fired ON THE SPOT. Instead Bush put the power in his hands to extort billions and give the 2008 election to Obama. Romney seems fine with that. Why not since he is the establishment candidate. Lets not forget that Bush also bailed out the Auto Industry, giving Obama a chance to finish the job. Bush also had his own stimulus. Just about everything Obama has done was started by Bush.

Is there any wonder we are just as leery of the GOP and the Dems?

PolishKnight| 2.27.12 @ 4:57PM

Goldman Sachs is an investment and speculation firm. It would be like bailing out daytraders. Do we really NEED them?

Former Republican| 2.27.12 @ 6:57AM

My bailouts are moral and just. Yours are evil.

Dai Alanye| 2.27.12 @ 9:22AM

I skimmed this quickly, so might have missed something, but did Crocker mention the fact that TARP was sold to us as a measure to clear the real estate market, only to transform overnight into a financing scheme for big banks to be bought by bigger banks?

In the meantime the real estate market continues as clogged as ever.

Timothy L. Pennell| 2.27.12 @ 9:55AM

First of all, everyone seems to forget why the Car Companies had to be "Bailed Out". At least, the reasons we were being told, anyway.

GM and Chrysler could no longer afford to stay in Business. At least, not with the Business Model they had Stuck Themselves with. When asked by a Reporter, how he liked GM? The Head of GM told him that GM was "A Health Insurance Company that built Cars on the side." (I'm paraphrasing)

In every other instance, the Laws of Economics would be allowed to kick in. Bankruptcy. Re-Organization. Re-Structure Debt and Mandates. That's the way we do it, around here. Just look at WELLS FARGO'S Acquisition of Wachovia Bank, after Wachovia filed for Protection.

We were told that nobody would Buy a Car from a Company in Bankruptcy. They had to be Bailed Out, if they were to stay in Business. So they were.

That is what the Left wants you to believe. Here's what REALLY happened.

The Muslim funnelled BILLIONS of Dollars to the Car Companies, and then promptly, put them in Bankruptcy.

Whaaaaaaaaaaaaaaaaaaaaaat?

That's right. The Taxpayer Money went to OBAMA'S #1 Cash Cow - The UNIONS. All of the Bailout Cash went to Pay Off all of the UAW's Legacy Costs, and Solidify their Pensions and their Health Care Costs. Bankruptcy would have CRIPPLED the Union's grip on the Companies. All of their Extorted Goodies would have been re-organized, thus saving the Company.They would have gotten their ASSES handed to them in Chapter 11, and rightly so. Obama could not let that happen. "We Reward our Friends, and Punish our Enemies." (Just ask the Bond Holders) It's the Money Laundering Deal of the Century.

Once UAW got their Cash, putting the Car Companies in to Bankruptcy was no longer a problem. They had used Our Money to bail out Their goodies, and now they would SCREW THE LENDERS to save Their Jobs, in the Car Companies that His Royal Highness, El Comandante', President For Life - OBAMA - had just bought for them.

I don't know what Geek Face - Crocker - is talking about.

He sounds like a Punk*ss, if you ask me. Or, is it that he LOOKS like a Punk*ss?

It's BOTH.

Thomas F. Williams | 2.27.12 @ 4:02PM

I don't know who you are Mr. Pennell, but I find myself reading the articles on here just for your response much of the time. Thank you!

Maddox| 2.27.12 @ 9:59AM

Oh yeah, the bailouts for my friends and supporters are necessary to prop up mine too.

Jim Mulcahy| 2.27.12 @ 7:17AM

The fact the taxpayers got their money back is no justification for the bank bailout. The intrusion into the market will have grave consequences for years. The one group that escaped unscathed in all this were the regulators who failed at every step of the way. Remember that all of the money taken out of money market funds went somewhere, read: bank accounts. The payment system was intact. The Fed would have stood ready to supply liquidity to any bank that needed it, a la Bagehot.
If there were no CP funds available, firms could have tapped their lines of credit at commercial banks; AIG could have gone through a traditional Ch. 11; and the SEC could have eliminated the Mark-to-market rule earlier which would have stopped most of the collapse as it did when it was finally changed. The banks that failed: WaMu and First Union were folded into stronger institutions. Those that couldn't survive without taxpayer help: citi and BofA should have been dismembered. They are probably worth more in pieces than as a whole. Merrill Lynch should have been allowed to go Ch. 11, too. The valuable assets would have survived.

teflon93| 2.27.12 @ 7:49AM

You know you've lost the thread when you're claiming the federal government overturning two centuries of bankruptcy law to screw creditors in favor of turning auto companies over lock, stock, and barrel to the label unions which have been the chief source of funding for the Democrat Party in power is anything but an abomination.

You RINOs are desperate---your lack of principles has become full on amorality.

Quartermaster| 2.27.12 @ 7:45PM

Ah, but that's just what the Obummer did. It's not merely a claim, it's a fact.

teflon93| 2.28.12 @ 7:50AM

Of course that should be "labor unions".

To the best of my knowledge, Obama has not yet turned over an auto company to a label union.

But there's still time.

mjs_pa| 2.27.12 @ 7:55AM

Santorum is absolutely right. Expedited bankruptcy's was the answer to the financial crisis.

What the government did fixed nothing. It only kicked the can down the road and invited more malfeasance.

It set the US up to be Greece.

There is nothing special about the financial sector that deserves all the special treatment D.C. gives it....other than tons of corrupting lobbying and money.

In fact, it is this constant special treatment of the banks and Wall Street which have distorted capital flows away from the real economy.

Instead of producing goods and services, we have become a country of printing money.

Von Mises Jr.| 2.27.12 @ 8:28AM

Spot on, mjs_pa. Perhaps the real difference in the two scenarios is that the GM and Chrysler bankruptcies only affected the common man. It affected the guys turning wrenches, and common stock investors and bond holders that were mostly average people, and their pension & retirement funds.
But the Wall Street bailout is the life blood of the political elite. It is where money laundering and social engineering are rampant. It is where politicians and Wall Street cronies gain great fortunes. And it was all done at the taxpayers expense to boot.
We currently have a sham three years later. The Fed prints money, lends it to the banks who buy T-Bills at 2-3% coupon. The banks and Treasury get a virtual money printing machine. Banks still won't loan to common people and SMB. The unemployement is depression era. The GDP growth sucks. And the people will figure out how bad it is when inflation or a collapse occurs because the elites TARP and Dodd Frank are a sham.
And the irony is that the little guys turning wrenches will get screwed when no one has money to buy their cars, and inflation makes their wages insignificant to maintain their standard of living. For Wall Street and the federal government, they will print more money and award themselves with bonuses.

c. j. acworth| 2.27.12 @ 8:01AM

As I have said before on other posts at other times, I'm just a dumb mechanic. I don't understand all the ins and outs of finance beyond my own, certianly not a whole economy's. A few things are clear even to such as I. First, it was largely government meddling in the housing market that drove up the number of sketchy mortgages through Fannie and Freddy, encouraged by congressscum like Barney "I'm willing to roll the dice" Frank. Second, having seen the results of their meddling, the response is more meddling, so every constituent gets its payout, and the reach and power of government is increased. Third, I have seen little evidence that the Republican candidates really understand the problem to the extent that they are willing to catagorically state that they will roll back the intrusions enough to keep such a thing from happening again. For example, repeal Dodd-Frank and wind down Fannie and Freddy.

Von Mises Jr.| 2.27.12 @ 8:41AM

c.j., my friend. You are not a dumb mechanic. You summed it up well, except that it is clear that the GOP does understand. I have been in GOP leadership offices and talked to their aides. One of them had just graduated from Hillsdale and studied economics using Von Mises 900-page "Human Action" as their textbook. They chose not to do anything about it because they are ruling class first and subordinate their role as representatives, or they are afraid or given up.

Perhaps people such as you should give yourself much more credit. Orwell wrote "some ideas are so absurd that only an intellectual could believe them." Perception and common sense do not always score high on IQ and SAT tests. Keep the faith, brother.

Big Tony| 2.27.12 @ 8:14AM

Mr. Crocker's arguments are unconvincing, would the result without TARP have been painful? Probably yes. The government simply kicked the can down the road so that when the house of cards they set up finally does collapse it's going to be a disaster. With Freddy and Fannie still looming this bank bail looks more and more just as Crocker described the auto situation simply a bailout for "paying off a Democratic constituency" only Wall St. is the Constituency of the republicans too.

McCandles| 2.27.12 @ 9:13AM

The author's initial premise is wrong, so the entire column is unnecesary. All of us, including Santorum, understand that the auto bailout and the TARP program are very different. And yes, reasonable people can disagree about whether or not TARP was a good idea. Santorum is simply being a politician, and trying to shore up blue collar votes by going after evil Wall Street. This is a political winner in all states, and not a bad idea, BTW. But don't tell me Santorum doesn't understand the differences between TARP and auto bailouts.

Dmac| 2.27.12 @ 8:45AM

Both bailouts were wrong, terribly wrong. The Wall Street bailout was nothing more than those responsible for it refussing to take responisibility for it. Like most on Wall Street they use other peoples money so they never have their own at risk. Lose someone elses money no big deal, file bankruptcy and keep you own money hidden away in an overseas account and scew your creditor. This time around they chose not to file bankruptcy, instead they looted the treasury, and when they saw they could do it once and get away with it, they did it again. This time the creditor they screwed was the American taxpayer. Many who lost their jobs because of the financial nightmare caused by Washington and Wall Street lost their homes, whats worse, they lost their good credit ratings. One really has to wonder why it is Joe American has his credit ruined by the same companies that took bailout money at Joe Americans expense. One also has to wonder why no one in Washington has bothered to do something to help those who lost their credit good credit ratings because of the bad things Washington and Wall Street caused? Again, the Middle Class took it right up the _ss and saw no representation in Washington. Truly disgusting.

sjccoach| 2.27.12 @ 8:49AM

Another CINO pushing the RINO for president. Bailouts are wrong end of discussion. Bailing out the banks and Wall street was as immoral as bailing out the auto industry. Failure is part of capitalism. If I make a mistake with my personal finances I have to declare bankruptcy. No one is going to bail me out no one should bail any business. TARP was a huge waste of taxpayer funds. Remember TARP was started by the RINO Bush.

Muadib| 2.27.12 @ 9:06AM

Typical RINO BS. "If the government doesn't rescue MY industry, the country will collapse."

A CFO of a commercial real estate development company wanted a government handout, got a government handout, and now is trying to rationalize his government hand out.
Mr. Crocker wants to live in a world where his losses are socialized and his gains are privatized- good work if you can buy off the government to do it. But that is a world in which the Democrats live (and RINOS like Mr. Crocker) The Dem's are buying Mr. Crocker, sell it to them not to us at the Spectator.

Oldefarte| 2.27.12 @ 3:39PM

That an imbicilic and dumbars statement, and Crocker's editorial is 150% correct!!!!!!!

Peppermint Tea| 2.27.12 @ 9:43AM

Bravo you AS posters, especially vonMises, Jr.
"Saving the X industry" has always been wrong, according to H. Haslett, who saw the immediate distortion of the market, prices, etc., in which ever X industry needed saving.
What makes TARP even more pernicious is that by saving the financial industry, the distortion is the WHOLE economy. Not just the Xs, but the whole machinery! The financial industry EXISTS to be a clearing place and a judge of where money should be put to get the most gain--to set financial priorities. When it is "rescued," then we don't know where to put money, or even the value of money.
Read The Great Depression Checklist on amazon.

LMajito| 2.27.12 @ 9:50AM

I still waiting for some of the writers to go down to any Chrysler/Jeep dealership and check the tags where the vehicles are being manufactured...

Will it surprise many that only the Chryslers 200 and 300 are built in Detroit with the remaining fleet manufactured in Mexico and Canada?

So this bailout was for mexican and canadian jobs mostly...

i wish somebody brings this up when the chief of state is pumping his chest while tooting his horn to the wonderful job the government did in detroit...

Floyd Looney| 2.27.12 @ 11:24AM

Don't you mean Chrysler-FIAT?

It's an Italian company now.

vtwin| 2.27.12 @ 10:57AM

How was the United States able to successfully defeat the World's enemies of liberty in World War II and and go on to dominate the postwar world?

Answer: because of her industrial and manufacturing capacity.

But today with declining American manufacturing, the result of an unpatriotic investor class that puts profits above country, American dominance in the World is increasingly threatened.

Obama recognizes this threat, saved the American automobile industry, Romney does not, so he opposed it.

Boar Hunter| 2.27.12 @ 11:00AM

Obama is a communist

Roy| 2.27.12 @ 11:02AM

Right - it was all about national security.

Guess I missed the part of WWII that was won because the government handed unions other people's assets.

vtwin| 2.27.12 @ 12:15PM

What do you this is more advantageous to our national security?

A: Brandon Crocker's commercial real estate development and management company.
B: Barack Obama returning the Automobile industry to profitability.
C: Mitt Romney hiding his money in the Cayman islands.

axbucxdu| 2.27.12 @ 12:42PM

None of the above. It's D: The Japan Steel Works.

As far as B goes, resetting the auto industry's liabilities and placing them on the books of the U.S. taxpayer, with interest payable, does not return me, said taxpayer, to profitability. Another prog, another that refuses to add.

Oldefarte| 2.27.12 @ 3:44PM

What is more advantageous to our national economy is the fact that Crocker's truthful editorial details the reasons why the original TARP was critical. If you have a checking, savings, CD's, mutual fund etc account today, it is possibly still there thanks to same, for without same every one of those things would have collapsed alongside the bank failures that would have occured without same. The car companies' bailout was a political payoff to the labor unions, but the bank bailout was a saving of everyones' private capital accounts/money!!!!

vtwin| 2.27.12 @ 12:21PM

Yes you missed it, the arsenal of democracy, the government handed union WORKERS other people's assets to produce the supplies needed to defeat the fascists.

Tim the Enchanter| 2.27.12 @ 4:25PM

Do you still have the sparkly pink streamers on your motorcycle handlebars? Looks so COOL!

Dick Nome| 2.27.12 @ 11:04AM

What Obozo is doing is nothing more than Fascism, a variety of socialism.

David W| 2.27.12 @ 11:09AM

I would rather have a candidate that is against bailouts up front. He or she can provide a caveat that they can be convinced to support a bailout if the argument is truly sound, but that the argument would have to really be sound, based upon support by economists who aren't business partners of Nancy Pelosi.

I would hope that the President would be willing to have this country endure short-term pain and risk being voted out of office than to kick the tin can down the road further.

Floyd Looney| 2.27.12 @ 11:22AM

Government should reduce taxes and regulations if they think the economy needs a boost. They should do this equally for all boats in the sea and not just their favored ones. (cronyism)

The auto bailouts were the worst sort of corruption just as the "stimulus" was an out and out grand theft.

Roy| 2.27.12 @ 11:34AM

This article is confusing.

The author seems to argue that TARP was necessary because of the short term freeze in money market funds. But what does bailing out the big banks have to do with that? As I recall, the Fed addressed this by briefly guaranteeing money market funds.

cicero| 2.27.12 @ 12:02PM

Tim P., Von Mises, acworth et al: Thank you very much. I don't feel so alone anymore. I have been shouting for about three years now that the bank bailout was to save the BANKERS only, and the auto bailout had nothing to do with saving the industry. The auto bailout wiped out all of the shareholdders of GM and Chrysler. They lost ALL of their money. Their 401ks, IRAs, and pensions were devastated. The only ones who benefited were the unions, and the executives, who rode off into the sunset, flush with cash.
The banks should have been left alone. Leyman filed bankruptcy, and its assets were bought by others. Leyman was a PRIVATE INVESTMENT BANK. Bear Stearns was a PRIVATE INVESTMENT BANK. Merrill was a PRIVATE. . . but you get the picture. Goldman was also a private investment bank, whose collapse would have mattered little to the average taxpayer. The fact that it was the counter party holding all of the CDS insuring IAG's bad bets in the mortgage securitization market shouldn't be overlooked. If the government had abandoned Mark to Market accounting principles immediately, no one except the shareholders of the private investment banks would have noticed.
Even after the infussion of the $700 billion into the banking industry by way of Tarp I, no one could get a loan to buy a car, a boat, or finance business activity. That is only starting to looen up now, with the auto companies financing the purchase of their own products.
Hurray for us who have figured it out. Now, I want to see who is going to go to jail for this highway robbery of the taxpayers. We still don't have an accounting for where all of that taxpayer money went. We know that Goldman was made 100% whole. We just don't know why, other than the fact that Goldman has major influence in the highest reaches of our government.
By the way, Tim P, your posts are always insightful. The expletives at the end don't reflect well. If you are going to head up our replacement party for the GOP in the next election cycle, we have to clean you up for your stump appearances.

JJ| 2.27.12 @ 12:13PM

And Hank Paulsen, the corruptocrat was from Goldman Sachs, and who does Goldman Sachs support now: Romney.

axbucxdu| 2.27.12 @ 12:45PM

The Fed's Primary Dealers always look out for themselves. You can bank on it.

Ron| 2.27.12 @ 12:58PM

Ah, I was reading it, and I thought "finally, somebody dissecting the bailouts for the common reader", but instead found another Santorum hit piece....Mittens is not the "One" for conservatives...Sorry, Mr. Crocker, but you failed to convince me...

Oldefarte| 2.27.12 @ 3:47PM

Brandon Crocker's article is outstanding and thoroughly explains the actual situation that was faced by the original TARP and why it was absolutely necessary. The auto bailout was however a piece of political corruption the likes of which have never before seen in this country!!!!!!

JJ| 2.27.12 @ 9:05PM

Bush gave GM and Chrysler money as a lame duck president giving Obama time to finish the bailout.

Oldefarte| 2.27.12 @ 10:05PM

You've got your presidents confused. It was the current El Chosen One who bailout the car companies. Why? Simple, because of his labor union thug political contributors, just as Crocker details. The original TARP was designed simply for making sure that all of the banks in this country did NOT FAIL, which would have resulted in possibly everyone losing their money funds, CD's, savings etc and the country going into a financial depression the like of 1929 never witnessed. It was not Bush!!!!!!!!

martin j smith| 2.27.12 @ 4:38PM

Why does Romney play the race card with his tax plan for those under $200,000-He is a double talker-forked tongue--if I have ever heard one. I heard him on Fox with Chris Wallace. Phoney as can be and not a Conservative. And Wallace gave Romney many free passes.Romney is very flawed
and I would also add that there are phoney polls from C-NBC going out there. Ignore.

martin j smith| 2.27.12 @ 4:39PM

I meant class card( class warfare ) but this could be a Freudian slip connecting him to Obama.

Hank Rearden| 2.27.12 @ 5:19PM

What was missing in the GM bankruptcy was financing to keep the company running while in Chapter 11. GM's finances were so appalling that there was no source of private credit for what is call "debtor-in-possession" financing - the additional money that is put into a bankrupt company while it reorganizes. That this was true is attested to by the data in the article - that the taxpayer is still on the hook for $50 billion even after GM is "getting well." Financially, GM was a basket case having been arguably the worst-managed industrial company, losing essentially one percentage point of market share a year for a generation.

But it would have been crazy to let GM be liquidated. That was what was on offer without government financing. Doing this was simply unthinkable. Yes, it is true that Obama paid off his constituency, the UAW. But the reason he had the power to do that was because private financing - the bond holders - had themselves been so reckless in lending GM money that they would have come up with very little if the company had been liquidated. Obama was the piper and he called the tune.

Brooklyn| 2.27.12 @ 5:30PM

You mentioned in the article that raising interest rates to make the investment more attractive is the logical way to go. Of course, you needed a President who could sell it to the American people and I don't believe George Bush was up to the task. To aell it, the President would have to have credibility on economics and a deep commitment to free markets.

e track from saq| 2.27.12 @ 6:01PM

It's a complicated situation,so many crooks in and out of government.Without the Street bailout your trip to the gas station without supposed credit card working would be much more difficult.Yet,in hind sight I disaggree with all government intervention.It is not their place.But at least,let's get some jail time from some of those bailout boys.
The democratic suxing management of Goldmans to begin with.

Quartermaster| 2.27.12 @ 7:52PM

Along with Dodd, Frank, the bunch up on the hill now, and in the WH. They all just await indictment. Conviction in Fed Court is pretty much a given, once you get them there.

PCP Smoker| 2.27.12 @ 8:23PM

Brandon Crocker...this is a crock of shit.

Oldefarte| 2.27.12 @ 10:06PM

NO IT IS NOT.....I'd suggest you stop inhaling!!!!!

POST American| 2.27.12 @ 11:20PM

Romney's an utterly 'on board' Globalist.

--He's for mandating the weaponized injections
of 'Big Farma'
-----He's PRO 'Banker Bailout'
-------He's PRO carbon taxes
---------He's the very arcihtecht of Obamacare
-----------He's linked to the criminal play-dough
plunderers of Goldman Sacks
---------------He's SILENT on the GM food halocaust
------------------He's been PRO 'a--bore--shun'
---------------------He's also been PRO open borders

No time for games.

Romney and Santorum ---are them.

"RON PAUL is the minister in the
whorehouse that is Washington."
-LEW ROCKWELL

-------And America is the crack whore going down
for the third time.

-----------------MAKE YOUR CHOICE------------------

Scott Ryan| 2.28.12 @ 12:13AM

Deal the Romney campaign the mortal wound it deserves.

Newt wants YOU to vote Santorum in Michigan (opinion)
http://www.TableOfWisdom.com

jstwndring| 2.28.12 @ 1:11AM

Correct me if i'm wrong, but, doesn't AIG underwrite government pensions? Weren't they also in trouble? If that's true, there's your answer to the original TARP. The ruling elite were just saving their own bacon. The rest is smoke screen.