There is a lot of outrage at the bank and the auto bailouts on both ends of the proverbial political spectrum, and quite a bit in the middle of the said spectrum as well. A lot of that outrage, of course, is both reasonable and warranted. Taxpayers are royally annoyed that the government decided to bail out the banks and the auto companies, while we continue to bleed jobs and incomes of people who have jobs continue to stagnate or fall.
However, I believe that irresponsible people on both far ends of the political spectrum are whipping up this frenzy for their own self-aggrandizement or the growth of their respective organizations and blogs (I'm looking at you, Jane Hamsher and Grover Norquist). The anger of the egotistical bloggers who claim to represent the liberal base of the Democratic party has combined with the runaway hatred of the conservative right for President Obama for a potent and potentially destructive force in American politics. Both are trying to whip up people's emotions with a version of faux populism that is hurting our country. So I plan to present an assessment that is sober and based on numbers and not emotions. I urge my readers to rein in their righteous anger and read about the actual consequence of the policy we are so angry at.
For all the outrage, there is hardly any dispute among mainstream economists - both liberal and conservative - that the financial disasters that forced the bailouts were a long time coming, but that those were necessary nonetheless. It's important to note here that the bailouts were not money simply given away, but low-interest loans from the taxpayers to the financial institutions. What's more, the worst fears, that the financial institutions will never pay this money back and the taxpayers will lose all this money, has not materialized. On the contrary, the Treasury has made at least $16 billion in profits from the Troubled Asset Relief Program, or TARP.
Earlier Wednesday, Citigroup and Wells Fargo said they repaid $45 billion that they got from TARP. That brings the total amount repaid into the program to $164 billion, the Treasury explained.Keep in mind that $164 billion in repayments and the $16 billion in profits for a moment. I will return to it shortly. But when was the last time you heard about the government making money on what it spends on private institutions?
Of the $700 billion total authorized for the TARP program, President Obama's Treasury Department has done an astonishing job and did not spend all of it. In fact, there is $226 billion left in unspent TARP funds, some of which the President and the Democrats want to use for job creation by giving it to community banks that would loan it to small businesses. Of course, the Republicans will have none of it. It appears that they were for job creations before they were against it, but that's another matter entirely.
So let's recap. $226 billion is left-over in TARP, $164 billion paid back. For a total of $390 billion, if my arithmetic is correct. So for everyone that screams about a $700 billion waste of taxpayer money, the money still at stake from TARP is $210 billion. Nothing to sneeze at, for sure, but certainly a long way from the $700 billion. Even if we lost all of that $200 billion, we will still have avoided a major economic catastrophe for $200 billion. In fact, the government's current estimate of the cost of TARP (i.e. how much money the taxpayers will likely lose) stands at $141 billion. This, mind you, is about a fifth of the original amount of cash at stake, $700 billion. Of the approximately $370 billion that went to banks in TARP funds, the Treasury has already made a $16 billion, or 4.3% profit in interests in the course of approximately a year. When was the last time you came across a savings account with a 4.3% annual interest?
What's more, Chairman Ben Bernanke of the Federal Reserve (whom, I wish Obama had not re-appointed), has said that the Fed will make a profit on whatever it spent on bailing out the banks. They are already closing the gap:
The company that was the biggest recipient of help from the Fed was insurer American International Group (AIG, Fortune 500), which at one point in October 2008 owed the central bank nearly $90 billion. While the firm has yet to start paying back that money in cash, the government has taken various assets and units of the company in lieu of payment. The Fed intends to sell those assets in the future when they have a better market value. Today, the Fed has AIG loans of only $20.7 billion.Once again, still big numbers that can potentially be lost. But nothing compared to the barrel of the gun we were looking down when everything started to collapse and it looked like all the money from Congress and the Fed might be for not.
Now, while I have no love loss for the financial giants whose CEO's took millions of dollars home and left millions of people hurting, let's try to remember that had these institutions completely collapsed, millions more would have lost all of their investments and nest eggs. The Great Depression would have looked like the good ol' days should that disaster have come to pass.
Ok, that was just the bank bailouts. What about the auto bailouts? Never mind the measely $82 billion that was shelled out to save the American auto industry and save some of its jobs compared to the $390 billion that was doled out to Wall Street. Now the government reports that it is expected to lose $30 billion on the auto bailouts, less than half of the original bailout money.
Two actions - bailouts, if you will - to prevent the economy form completely falling off the edge, to prevent all of your savings and retirements from disappearing, and to prevent the loss of even more autoworker jobs, will be costing the American taxpayer about ($141 Billion in TARP and $30 billion in Auto Bailouts) $171 billion. Once again, that is a gigantic number. But if you are going to be outraged, let that number be the source of your outrage, not the inflated almost $800 billion that was originally at stake.
The $171 billion down from a $800 billion total also represents the fiscal prudence and responsibility practiced by the Obama Administration, and in particular, Geithner's Treasury department. I know people want Geithner's head on a platter. I know some want him fired because he was the President of the New York Fed during the emergence of the 2008 economic collapse. Whether or not he made things worse when the New York Fed loaned billions to bail out Wall Street is a separate question, and I have not seen any evidence that he has. But as Treasury Secretary over the past year, the results speak for themselves. It sure as heck ain't based on performance reviews that he should be fired.
The above does not mean I have any illusions about how much financial regulatory (and criminal law) reform is needed to ensure that what happened last year doesn't happen again. We need to severely re-regulate our financial institutions and make sure our watchdogs put the public interest over that of the CEO's of the banks. That is a must. No if's, and's or but's there.