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Farewell to the Spectator
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Tentative Praise for Ryan’s New Bipartisan Medicare Plan
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The Spectacle Blog
In the course of defending anti-TARP anger, Ross Douthat addresses budget expert Stan Collender’s argument that the administration would have faced backlash no matter how the bailouts succeeded:
Well, actually, there is a scenario in which the anger would have been significantly reduced: If unemployment, foreclosure rates, and so on were considerably lower than they are today. The point of the original investment, after all, wasn’t to make the government an extra $25 billion; it was to stave off economic collapse. In this regard, it may be unfair that voters don’t give enough weight to the dire, “life without a bailout” counterfactuals when assessing whether TARP was a good idea. But it seems perfectly reasonable for them to note that Washington’s investment is being repaid with interest only because the banking industry has weathered the economic storm rather better than the rest of the country, in spite of bearing so much responsibility for creating that storm in the first place. At the end of the day, there’s something more than a little tone-deaf in telling a country mired in 9.5 percent unemployment that TARP was a success because the banks are doing well enough for the feds to recoup their investment. That news is more likely to simply confirm the widespread suspicion that the bailout saved the rich and empowered the powerful, while hanging the broader public out to dry.
One note, though, is that while TARP-haters might not give enough weight to the no TARP counterfactual, the administration and many Democrats grossly overweight it. By taking as assumed that without TARP the country would be in the midst of a Depression, administration officials not only overestimate TARP’s role in saving the financial system, they also excuse poor oversight and mismanaging.
I have little doubt that politicians like Harry Reid really do believe that the country would have descended into chaos without TARP. After all, Tom Coburn also voted for TARP. He did so because Republican-appointed economic experts painted a picture of people warming canned soup over fires made of their furniture. Coburn’s a doctor, not a financial expert.
The problem is that Obama, Reid, and many budget experts seem unable to separate the idea of the counterfactual from the real-life scandals that have plagued TARP from the week it was passed. Yesterday a fresh outrage was added to the long list of TARP abuses when the inspector general for TARP reported mismanagement and suggested politically-motivated manipulation of data hiding what happened with the bailout of AIG. Although this is exactly the kind of news that stokes the resentment and frustration of those already opposed to TARP, it is easily rationalized away by someone who thinks TARP saved the country overall. Why waste time or energy looking backward at the relatively minor misdeeds and lawlessness of Geithner and Paulson, when those complaints are so easily written off as part of a package deal that spared us bread lines?
Of course, there is really no such certainty that the U.S. would be in an economic depression without TARP. And the tragic irony is that there really is soaring, near-Depression-level unemployment, but it’s confined to groups that were not directly affected by TARP.
PattyMor| 10.26.10 @ 3:43PM
I have to differ with you, the banks were not the cause of the financial meltdown. It was the federal government passing the community reinvestment act, juiced up by Cuomo and Reno.
Then they pushed Fannie & Freddie to package toxic loans and sell them around the world. The Federal Reserve keep interest rate low in order to keep the bubble going. Then ACORN browbeat the banks to make bad loans. Barney, Chris, and Maxine kept the regulators at bay. Ok the banks and the bond raters piled on, but they are NOT the main cause.
David W| 10.26.10 @ 4:02PM
The banks and others took advantage of what the government, in their finite wisdom, decided to set up. The government did two things: 1) manipulated the rules to help people who couldn't afford a home buy a home they really couldn't afford and 2) prevented those who saw the train wreck from stopping. Had the Democrats and some Republicans not done these two things we never would have had the meltdown. Sure, the banks added to it, but the root cause was the original government stupidity, not the symptomatic greed on almost everyone else’s part (after all, when government rewards stupidity you end up with more and more of it).
Eric Cartman| 10.26.10 @ 4:30PM
Exactly - the government set the stage, the banks played along. If you were a banker, wouldn't you? Here's the set up:
1. Government says "you better loan money to those poor people over there who can't possibly pay it back"
2. The bank says "But we will go broke and there will be a banking crisis and you will be voted out of office."
3. The government says, "No, because we'll buy the mortgages as a secondary lender and you can sell them to us - it's a win/win"
4. The investment banks say "Hey! What about us?"
5. The government says, "Oh, don't worry. We got you in mind, too. You can use something called mortgage back securities and complicated derivative equations like Black-Scholes to create investment vehicles out of these useless mortgages, cut them up in tranches and sell them world-wide in something we like to call 'risk-free, AAA, portfolio enhancers'. And you can tell people they can have "risk-free portfolios' by mixing these tranches into their investments."
6. Everyone looks at each other for a second in stunned silence and says "Ahh hahah, oh, that's so insane, it just may work! Ahhhhh hahahahahaha - that's beautiful! Let's do it!"
Then when people start questioning the basic assumptions of this insanity, the government will call you a racists and Barney Frank call you a homophobe. And no one goes to jail Is that beautiful, or what?
Roy| 10.26.10 @ 6:55PM
And don't forget "should those mortgages go belly up we will of course bail you out".
fetoau| 10.26.10 @ 5:43PM
Cartman, very insightful. However, you left one thing out. The banks bought those "risk free, AAA securities" backed by mortgages they wouldn't hold.
Eric Cartman| 10.26.10 @ 7:41PM
No, no - got that. #3
jrs| 10.26.10 @ 11:54PM
Let's not deny the government's involvement in especially as the Fed kept rates artificially low helping to drive the bubble (it's a mathematical fact that all things equal, lower rates result in higher values) as well as low rates resulted in the demand for financial innovation that promised higher rewards for the same risk (its amazing how dumb smart people can be). We could go on about FNMA and Freddie's invovlement, etc... BUT where many conservatives show their complete ignorance on this topic is the connection between the CRA and the mortgage crisis. Let me start out that I don't support the CRA, I think it's bad policy, etc.... but the CRA has almost nothing to do with the mortgage crisis. Yes, the underlying culprit of the crisis is greed. People bought what they couldn't afford, but it wasn't because the government was forcing banks to give them money. No, banks were giving them money because it was profitable (or so they thought). It wasn't the government that created any of these exotic loans or securities, it was the market participants. Can't afford a house, that means I can't sell you a loan (and make a fee). Guess what, we'll create x or y, etc... Who cares if you can afford it, I'll just sell it off and worse case, it will go up in value. In fact, demand to create these loans outstripped the number of borrowers that synthetic mortgages were created. Once again, not the result of the government but rather market demand. Banks got in trouble because they got too greedy and lazy. The crap on their balance sheets isn't what the government crammed down their throats but rather what they couldn't repackage and sell. I love markets, and markets are great, but that doesn't mean they're perfect. They've brought us plenty of economic growth but they've also brought their fair share of bubbles.
Eric Cartman| 10.27.10 @ 9:01AM
The CRA set the tone fobanks. Before that, you had sensible lending practices and stable housing. CRA gave lenders vehicles they wouldn't have otherwise thought of or offered. The gubmint kept rates low, granted, but low rates don't necessarily equal bubbles. You want reasonably low rates for growth - the policy that everyone deserves a house brought this on along with a bit of greed. CRA was a Jesse Jackson wet dream and we're now living Freddie Kruger Style.
CalMark| 10.26.10 @ 9:21PM
Don't blame the banks for greed so much as gutless cowardice.
They didn't want to make those loans. But Janet Reno threatened to destroy them with trumped-up prosecution for civil rights "crimes" if they didn't.
Instead of banding together, they took the easy road. And the easy road inevitably leads to perdition.