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?
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This seems about right: the main function of TARP and the Stimulus was to prevent panic, and it seems to have worked.
http://www.realclearpolitics.com/articles/2009/10/05/escaping_depression_20_98560.html
That these huge declines didn’t lead to depression mainly reflects, as Romer argues, countervailing government actions. Private markets for goods, services, labor and securities do mostly self-correct; but panic, driven by the acute fear of the unknown, feeds on itself and disarms these stabilizing tendencies. In this situation, only government can protect the economy as a whole, because most individuals and companies are involved in the self-defeating behavior of self-protection.
In my own case, TARP made me worry more than it soothed me. My first thoughts were 1) “awesome, more debt to China” and 2) “I wonder how those companies are going to waste the money?” But perhaps I shouldn’t be that way. 🙂
Empirical result? Increased unemployment!
“This seems about right: the main function of TARP and the Stimulus was to prevent panic, and it seems to have worked.”
We’ll just panic when it all has to be paid for after the damage is done. It’s not done yet.
Let’s deal with one problem at a time. Consider the damage that may not have been done and that was,it would seem, averted.
Speculation about consequences is interesting, but it’s too Dow 36000 and slippery slopes that seldom materialize and the world ending tomorrow for me.
Back in Sept/Oct of last year Hank Paulson had a hefty portion of the legislature and the executive defecating in their boxers, convinced that the world was teetering precariously on the brink of economic collapse.** TARP was passed. It may actually have succeeded or be succeeding.
Other than the evidence ,very real as well as circumstantial–regarding appropriate distribution of the funds, whether the program is doing enough to fulfill the promise of its name ( Program), etc. etc. — we can only look at where the US economy is now compared to its supposedly precarious state last year and theorize all the possible scenarios that didn’t occur. We’d be hard put to find ‘proof’ that any one of those scenarios would or would not be the result of TARP actions.
You’re involved in a head-on collision with a tractor-trailer; you’re wearing your seat belt. Your survival, if you should survive, cannot be definitively attributed to the seat belt. There are always airbags, frame construction, speed upon collision and many other factors to consider. Of course you can always look back and say you didn’t need the seat belt. You lived because God has other plans for you.
**Bush, Cheney, Powell, etal and WMD
———-
An interesting sidebar to the TARP monies discussion:
http://www.salon.com/opinion/feature/2009/10/06/smallpox/index.html
The debt is still there and there has not been a plan to pay for it yet. When all of the decisions are made on a payment plan is when the pivotal moment will be with our economy.
Don’t forget the debt that was there in 2007. It increased from almost 6 trillion to almost 9 trillion from 2001 to 2007. That’s a hefty chunk of change. Here’s an interesting graph–especially the red line:
http://zfacts.com/p/318.html
I’ve been repeating this question here, when the opportunity arises: Where were the shouting tea party folk between ’01 and ’07. What pushed their little buttons at the *9 trillion!* level? Why worry about the debt now–not then?
The plan seems to be to leave the debt for the kids.
Seems to have been. This didn’t start yesterday or in January or last year or. . .