Today Princeton economist and former vice president of the Federal Reserve Board Alan Blinder has an op-ed in the WSJ, with the jump headline "Bernanke and Obama saved the economy," arguing that TARP, the stimulus, and the Fed's "stress tests" of the big banks in early '09 saved the world economy from complete disaster, and that we should be thankful:
So the next time you see Chairman Bernanke, congratulate him for threading the needle. And the next time you see members of the House and Senate who voted for TARP and the stimulus package, give them a hug and say thank you for taking two monumentally tough votes that helped keep us from falling into the abyss.
What could be the justification for this homage to the powerful? Setting aside the stimulus and the stress tests, here's Blinder's explanation of why we should be so thankful to Bernanke and Obama for TARP (no word, by the way, why Blinder credits TARP to Obama and not to Bush, who signed it):
TARP must be among the most reviled and misunderstood programs in the history of the republic. Voters are clearly appalled by the idea that their government spent $700 billion bailing out banks.
The only problem is: It didn't. Even if we count insurance giant AIG as a bank, no more than $300 billion ever went to banks. TARP's total disbursements, including the auto bailout, never reached the $400 billion mark. The money went for loans and to purchase preferred stock; it was not "spent." In fact, most of it has already been paid back-with interest and capital gains. When TARP's books are eventually closed, the net cost to the taxpayer will probably be under $100 billion-far under if General Motors ever repays.
Spending perhaps $50 billion of taxpayer money to forestall a financial cataclysm seems like a bargain. Yes, I know it's maddening to hand over even a nickel to bankers who don't deserve it. But doing so was a necessary evil to save the economy. Think of it as collateral damage in a successful war against financial armageddon.
Blinder is absolutely right about the technical costs of TARP. But TARP's books do not include all the information about the costs of the bailouts. For instance, shouldn't Fannie and Freddie, which together have propped up the market for the kinds of toxic assets for which TARP is named, be included in those costs? So far taxpayers have shelled out $145 billion for the two, and are on the hook for many billions more -- at least twice that much, according to the CBO. And that's not to mention that the reason that most of TARP "has already been paid back-with interest and capital gains" is that the Fed has subsidized the big banks' revival with ultra-low interest rates, allowing them to borrow short money for next to nothing and buy higher-yielding, longer-term Treasurys at low risk.
The real reason, though, that no one should hug any official for passing TARP has to do with more than dollar costs. TARP is a political economy disaster: thanks to TARP, the big banks are bigger and consolidated, more profitable, and more influential than before. TARP advanced the interests of the rich and connected over everyone else such that now, right after the biggest financial crisis in 70-plus years, the government is still not able to enact regulation that would ensure that banks don't become too big to fail again. TARP undermined the rules of capitalism and stoked peoples' suspicions that the game is rigged and that the rules of free markets -- most importantly that you fail if your competition does your work better than you -- don't apply equally to everyone. TARP did a lot to help out the powerful at the ordinary taxpayer's expense; the powerful don't need any hugs or thank yous for it.
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