I hope NC readers don’t mind my belaboring the issue of the TARP’s phony success, but every time I see the Administration’s propaganda parroted I feel compelled to weigh in.
The trigger was an effort at a balanced assessment by Annie Lowrey at Slate, to which I have some objections, followed by some shameless and misguided cheerleading by Andrew Sullivan:
But two years ago, I sure didn’t expect the government to make a profit from TARP. And I sure didn’t expect the auto bailouts to become such huge successes.
What’s surprising to me is how pallid is the Obama administration’s spin has been on this. I never hear them bragging about how they managed to pull us out of the economic nose-dive we were facing. I know why: the recession isn’t over, even if TARP was a success, no one wants to hear about it, etc. But it’s one of the strongest and least valued part of Obama’s record – along with the cost control innovations in health insurance reform.
At some point, you have to stand up and defend your record. No doubt Obama is biding his time on this. But count me as surprised as I am impressed.
Any effort to look at the performance of the TARP in isolation is pure three card monte, and accepting that framing plays into the Administration’s hands. You can’t look at its “success” of a program when its results are dependent on other operations, such as continued regulatory forbearance (aka extend and pretend), the Fed’s super low interest rates (a massive tax on savers), the continuing use of Fannie and Freddie to prop up the housing market, the train wreck hitting state and municipal budgets (the collapse in their revenues is a result of devoting fiscal firepower to the banks rather than the real economy; the experience of other severe banking crisis suggests that a short term fall in economic activity was inescapable, but less bank-coddling approaches would have led to a bona fide recovery).
If someone was flattened in a car wreck, taken to a hospital, put on life support, and then subjected to all sorts of operations and medical procedures, how would you judge the result? If the doctor told you, “His broken legs have healed, the internal bleeding has stopped, we are no longer giving him IVs” would you consider any of that germane if he was brain dead and still hospitalized, with no immediate prospect of functioning independently?
The banks’ denials to the contrary, if their second liens and commercial real estate exposures were valued at realistic levels, the four biggest banks would all need major equity injections. They should not have been permitted to pay back the TARP, nor should they be paying dividends or “Mission Accomplished” level bonuses. And if the biggest depositary banks were revealed to be in as bad shape as they really are, do you think Morgan Stanley and Goldman would be unaffected? They might not go into crisis mode, but they would not have smooth sailing either.
But there is a way in which the TARP was a complete success. It was a de facto financial coup. The regulations put the Secretary of the Treasury outside the law. The Fed has run quasi fiscal operations outside normal budgetary processes with hardly a peep from Congress (the Audit the Fed was a helpful effort to increase transparency but still fell well short of dealing with the usurping of Constitutionally mandated approvals). And this isn’t our view; Simon Johnson was early to see what was really at stake in his May 2009 Atlantic article, “The Quiet Coup“.
And we see an continuation of government dominated by financial interests in the passivity of the Obama administration at continued high levels of unemployment, when Reagan went into aggressive action at lower trigger points. Instead, we have bond vigilantes driving policy when the lessons of Latvia, Ireland, and Greece are again proving that austerity only makes debt hangovers worse.
What we need is debt reduction via restructuring and offsetting stimulus, but that means imposing losses on banks. So no matter how you try to cook the books, the political “success” of TARP is an economic disaster for everyone except its immediate beneficiaries, which include writers who have made themselves scribes to the oligarchs.