The Cost of TARP

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Jackie Calmes reports on the good news about the very low net cost of the Troubled Asset Relief Program:

But the once-unthinkable possibility that the $700 billion Troubled Asset Relief Program could end up costing far less, or even nothing, became more likely on Thursday with the news that the government had negotiated a plan with the American International Group to begin repaying taxpayers.

The rescue of the troubled insurer included $70 billion from the bailout program that was enacted two years ago, at the height of the global financial crisis late in the Bush administration, initially to prop up big banks.

At the White House on Thursday, the Treasury secretary, Timothy F. Geithner, briefed President Obama about A.I.G. and about the broader outlook for the expiring rescue program, putting the projected losses at less than $50 billion, at most. Yet neither the White House nor Congressional Democrats are likely to boast much in the month remaining before midterm elections. For most voters, TARP remains a four-letter word.

To go even stronger here, it’s clear that the much-loathed core of TARP—the injection of government funds into insolvent banks—is going to earn a substantial profit. Losses will be attributable to efforts to use money to save the auto companies and to assist homeowners. Main TARP—the bank bailout—isn’t going to cost you anything. For a program that’s attracted such widespread derision, that’s pretty remarkable. Do you think letting the banks fail would have had zero disruptive impact on the economy? None whatsoever? What other programs can you name that garned support from Nancy Pelosi and George W Bush, helped people millions of people, and had a negative cost to the government? And yet people think it’s horrible, in part because the public sphere has utterly failed to defend it.

That’s a problem, in part because the early days of TARP were a huge success for the public sphere. The month before a nationwide general election is not a great time to ask a legislature to approve a bank bailout. And initially the House of Representatives rejected it. But responsible people came together and bludgeoned a critical mass of House rightwingers into doing the right thing. Then Hank Paulson devised a plan for asset purchases that almost certainly would have lost tons of money and possibly not stabilized the system. But in response to vigorous and well-informed criticism from a variety of quarters (with Paul Krugman playing a leading role I would say) he changed directions in favor of the equity injections that are giving us the negative-cost bank bailout we’re enjoying today.

It became a lost opportunity for ideological instruction. Instead it’s become a moment of anti-instruction, which people think has demonstrated the lesson that the government consists of nothing but corrupt giveaways. It makes me sad. When it was first proposed, I didn’t understand this issue correctly. But in the ensuing two years, I’ve learned more about it and improved my understanding. The public as a whole, however, as just gotten itself more confused.