I don’t know how many times we’ve gone after the “TARP made a profit” bunk, but that topic requires an annoying amount of vigilance (the latest shill was Austan Gooslbee a mere week ago). This story is a messaging version of three card monte: look at the things that don’t involve the big subsidies, such as continued super low interest rates (a massive tax on savers) or QE (the Fed keeps insisting it won’t take credit losses, when it plans to sell its holdings when the economy strengthens, which means when interest rates are higher….which guarantees interest rate losses). Oh, and the “made a profit” claim also implies the government got a good deal, when the warrants were massively underpriced.
The best short form debunking came from Steve Waldman and it cannot be repeated too often:
Suppose my kid’s meth habit got the best of him. He’s needs to come up with $100K quick or his dealer’s gonna whack him. But he’s a good kid, really! Coulda happened to anyone. So I “lend” him the money, even though he has no visible means of support and the sketchiest loan sharks in town wouldn’t give him the time of day. Now I believe in bootstraps and hard work, individualism and self-reliance. So I tell my son. “Son, you are going to pay me back every penny of that loan. You are going to work it off. I have arranged with one of my golf buddies, a guy who owes me a favor or three, a job that pays $200K a year. You’d better show up every day at 9 a.m. and sit behind that desk, and get me back my money!” And he does! After a year, he’s made me whole. What a good kid.
No bail out, right? He paid me back every penny! Worked it off!
Bullshit. The opportunity I provided him, the $200K job that he would not have received without my intercession, was a huge grant. On the open market, if I were to accept bribes from the highest bidder to wangle the job from my friend, that opportunity would be worth more than the $100K advanced. I paid my son’s loan with my own money. I just obscured the cash flows, so my son and I can pretend and sustain our mutual self-regard and our righteous disdain for the moochers and the hippies and the riff-raff.
But now, we have the GAO, in bureaucratese, going after Treasury for dubious public presentation of TARP projected results. In simple form, Treasury cherry picks. It includes programs which are successful and excludes costs of ones that are iffy, like AIG. Here is the key section:
Although Treasury regularly reports on the cost of TARP programs and has enhanced such reporting over time, GAO’s analysis of Treasury press releases about specific programs indicate that information about estimated lifetime costs and income are included only when programs are expected to result in lifetime income. For example, Treasury issued a press release for its bank investment programs, including CPP [Capital Purchase Program], and noted that the programs would result in lifetime income, or profit. However, press releases for investments in AIG, a program that is anticipated to result in a lifetime cost to Treasury, did not include program-specific cost information. Although press releases for programs expected to result in a cost to Treasury provide useful transaction information, they exclude lifetime, program-specific cost estimates.
The GAO also recognizes that there is a risk to rescuing meth addicts and wishes that could be acknowledged too:
While Treasury can measure and report direct costs, indirect costs associated with the moral hazard created by the government’s intervention in the private sector are more difficult to measure and assess.
It’s sad to see our prejudices confirmed yet again, that it is best to assume the Administration is lying until proven otherwise.