Archives for October 5, 2009

While the media spotlight has mostly moved away from TARP, worries about this bailout still remain.  One obvious concern is the question of whether TARP worked or not. Another concern is whether or not the money is being used responsibly. A third concern is whether we (the taxpayers) will ever get our money back.

It is tempting to answer to all three questions seems to be “no”, but it is worthwhile to consider these matters in somewhat more depth.

The usual argument that TARP worked is that the economy has recovered to a degree. For the most part, this seems to mean that the economic bleeding has slowed for the general population and the surviving big losers are now turning  a profit. Of course, to infer that TARP caused (or even just contributed to) the recovery from the fact that the recovery followed TARP would be fall into the post hoc, ergo propter hoc fallacy. After all, the mere fact that one thing follows another does not establish a causal connection. More than a temporal connection is needed if someone wants to claim TARP worked.

While some experts say TARP helped, equally credible experts say that it did not. Not being an expert myself, these leaves me only one logical option: suspend judgment on the experts’ claims. After all, I have no rational way to decide which experts are in fact correct.

While I admit no expertise in economics (assuming meaningful expertise is possible), I do know that the burden of proof rests on the folks who claim that TARP worked. So far, I see no convincing causal evidence that TARP did the trick. As such, my position is to suspend judgment about its effectiveness. I am inclined to think it did not, but this is based on the view that the money was probably not used responsibly, which takes me to the second matter.

The overwhelming evidence seems to be that the money was not and is not being used responsibly. As noted in numerous news reports, some companies that received bailout money continued to dole out large bonuses and continue business as usual. Of course, the businesses do not deserve all the blame. After all, most of the money was handed out with no strings attached. The usual claim is that the folks in DC were in such a hurry to “save” the economy that there was no time to include such restrictions. That is, of course, absurd. After all, there are centuries of guidelines about lending money available and there seem to be many obvious guidelines that would have been easy to put in place. Like most folks, I certainly would like to have gotten a loan on such amazing terms and without any limitations. But, when I take out a loan, I have to face numerous questions, undergo a credit check and  show that I can pay it back. If only the financial folks were held to their own standards in this matter, they would probably have never gotten a penny.

I suspect that the real story might involve the fact that many of the people handing out the money to the current Wall Street folks were (and are) former Wall Street folks (or their friends). As such, the evidence seems to be that the money is not being used in an adequately responsible manner.

In regards to the third matter, my view is that we will not get our money back. Obviously, we are not getting dividend checks from the companies we involuntarily invested in. While some money has been paid back, it goes back to DC and is no doubt quickly spent again (perhaps on more TARP programs). As such, the general population will not be seeing that money ever again. Of course, this is no different from our other taxes. Of course, I could be in for a surprise. Maybe we’ll all have lower taxes this year as our massive “investment” and loans yield the sort of amazing profits that the financial folks have been handing to themselves all these years.  Or, to dream the dream of Wall Street, would it not be amazing if we got some fat bonus checks next year?