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.