December 10, 2009
Bailout: RIPBy Randall Hoven
The bailout is over: Born October 3, 2008; died December 7, 2009. The banks have been rescued. A Great Depression has been averted. Feeling better?
It is now behind us. (By the way, I cite this quote from Paulson not so much to elucidate as to mock the guy who asked for $700 billion to solve a problem, the nature of which he could not understand until it was behind him.)
According to the Associated Press Monday, the Obama administration is about to announce that the Troubled Assets Relief Program (TARP) has run its course. They are done. (Well, almost done. Now Treasury Secretary Geithner says he'd like to keep that money around, just in case of "fresh economic shocks." You can never be too complacent about economic shocks, you know. You never know when a few hundred billion dollars might come in handy.)
The government spent about $450 billion from TARP and has been repaid $116 billion, with more repayments expected. In fact, they are saying that when all is said and done, TARP will have cost about $140 billion. Now President Obama and company are pondering what to do with the "leftovers." Many are thinking more "stimulus."
If you recall, things were going great in 2007 and not all that terribly through the first half of 2008. In the spring of 2008, the GDP grew at a 2.8% annual rate, unemployment was 5%, and the S&P 500 hit 1427...not to mention the surge in Iraq looked to be working, and Afghanistan was still the "good war." By September 17, the McCain/Palin ticket was actually leading in the polls.
Then, on September 21, Treasury Secretary Henry Paulson went on Meet the Press and announced that we need a huge bailout for the banks, immediately, or we would all die. (He didn't actually say "we will all die." What he said was, "Last week there were times when the capital markets or credit markets were frozen. American companies weren't able to raise financing. That has very serious consequences ... we need this legislation in a week, because we have a-we have a problem in our capital markets that's urgent to deal with.")
He had already discussed it with Fed Chairman Ben Bernanke, and they agreed. And the two of them convinced President Bush. Who was Bush to argue with these Wall Street geniuses, who were his own appointees?
Early on, someone asked Paulson, "How much?" Paulson and Bush did not want to lowball and have to ask Congress for more later, so they highballed the figure of $700 billion. (My guess: Paulson took the 1990 Savings & Loan bailout amount, adjusted for inflation, and rounded, more or less.)
So there we were: give us $700B or we all die. McCain went into a panic. He halted his campaign. He ended up convinced, just as Bush was, by the Wall Street geniuses. He became such an advocate that he persuaded enough reluctant Republican congressmen to vote for the bailout, despite letters and e-mails from constituents being about 100-to-1 against it. McCain's nosedive in the polls coincided rather perfectly with the evolution of the bailout.
But there was just enough congressional reluctance at the $700B figure that it would pass only if another $150B was added in "sweeteners," what with Republican revulsion to deficit spending. (Democrats were on board from the git-go, just like a fraternity house offered free beer.) And on October 3, 2008, Congress passed and President Bush signed an $850-billion TARP bailout bill.
Suddenly, it was a new world. In the old days, a president proposed a budget in February and Congress spent several months cogitating, debating, and earmarking. By the time the fiscal year was over in September, Congress would be late on the budget, pass a continuing resolution, threaten to shut down the government and close the Washington Monument, and maybe not come out with a final budget until October or even November. And it might cost as much as $2 or $3 trillion.
Those days are over. Now, you could just add another $1 trillion in a couple of weeks, as long as the cause fell into the category of "we will all die if it's not passed right now." Later, we would need a trillion-dollar stimulus. Then a trillion or two for health care. A few trillion to change the earth's weather. If you add up Treasury, Fed, and FDIC authorizations, almost $13 trillion were spent over just 18 months fighting this recession. The normal $3-ish-trillion budget is now the tail on the dog.
The TARP bailout was not "merely" the money -- the $850 billion. It birthed a whole new paradigm of federal spending. After that, President Obama, who wastes no crisis. After that, a trillion dollars for every new problem, and, for that matter, every old problem. After the bailout, all panic all the time. A trillion dollars and a czar, or it's cannibalism.
By the way, it is December, and no FY2010 (which started October 1) federal budget. They don't even bother to talk about it anymore. No budget, but they don't seem short of money, do they?
But here's the funny thing: Henry Paulson said we were done with the bailout last December.
In fact, at that time they had spent less than $267 billion -- that is $0.27 trillion. And at that point, Team Bush was done. They would ask for the second $350B only if President-Elect Obama asked for it. President-elect Obama asked for it. Team Obama then had another year and got the TARP total to only $0.45 trillion. And now it's done.
Now they tell us.
Let me get this straight: Paulson said he needed $700 billion. Then he said he was done just two months later, at $267 billion...a sort of "never mind" moment. But the world would not be the same since -- trillions and trillions and Obama later.
Doubtless $0.25 trillion or so would have done it. In fact, maybe nothing would have been OK. Who knows? Economists are still wondering what the heck happened with the Great Depression. All they know is that it was the free market's fault. Not the tripling of federal spending. Not tax increases. Not Smoot-Hawley tariffs. Not monetary manipulation. Not an explosion of regulations and federal agencies. No, it was the free market.
So now we are told that the financial crisis wasn't really all that bad. Just maybe a $0.25-trillion problem, if that. Yet here we stand with unemployment at 10%, three years with zero net economic growth, a two-year federal deficit of $3 trillion, and a federal debt over $12 trillion and growing without bound...all to fix a recession caused by a banking crisis "solved" with $0.25 trillion.
This is like your doctor coming to you after the surgery that removed your left lung and saying, "Funny thing, that 'tumor' turned out to be a benign cyst we could have removed in outpatient surgery -- ha, ha, ha. But seriously, your cyst is gone now. I'd appreciate prompt payment."
I can't get my lung back, but I sure intend to change doctors.