We didn’t make money on TARP!
There’s a pretty good article here by Gretchen Morgenson about how the banks have been treated well compared to average people- and since I went through the exercise of considering whether corporations are people, I’ve decided it’s misleading yet really useful to talk about “treating banks” well- we should keep in mind that this is shorthand for treating the people who control and profit from banks well.
On thing I really like about the article is that she questions the argument that you hear so often from the dudes like Paulson who made the decisions back then, namely that it was better to bail out the banks than to do nothing. Yes, but weren’t there alternatives? Just as the government could have demanded haircuts on the CDS’s they bailed out for AIG, they could have stipulated real conditions for the banks to receive bailout money. This is sort of like saying Obama could have demanded something in return for allowing Bush’s tax cuts for the rich to continue.
But on another issue I think she’s too soft. Namely, she says the following near the end of the article:
As for making money on the deals? Only half-true, Mr. Kane said. “Thanks to the vastly subsidized terms these programs offered, most institutions were eventually able to repay the formal obligations they incurred.” But taxpayers were inadequately compensated for the help they provided, he said. We should have received returns of 15 percent to 20 percent on our money, given the nature of these rescues.
Hold on, where did she get the 15-20%? As far as I’m concerned there’s no way that’s sufficient compensation for the future option to screw up as much as you can, knowing the government has your back. I’d love to see how she modeled the value of that. True, it’s inherently difficult to model, which is a huge problem, but I still think it has to be at least as big as the current credit card return limits! Or how about the Payday Loans interest rates?
I agree with her overall point, though, which is that this isn’t working. All of the things the Fed and the Treasury and the politicians have done since the credit crisis began has alleviated the pain of banks and, to some extent, businesses (like the auto industry). What about the people who were overly optimistic about their future earnings and the value of their house back in 2007, or who were just plain short-sighted, and who are still in debt?
It enough to turn you into an anarchist, like David Graeber, who just wrote a book about debt (here’s a fascinating interview with him) and how debt came before money. He thinks we should, as a culture, enact a massive act of debt amnesty so that the people are no longer enslaved to their creditors, in order to keep the peace.
I kind of agree- why is it so much easier for institutions to get bailed out when they’ve promised too much than it is for average people crushed under an avalanche of household debt? At the very least we should be telling people to walk away from their mortgages or credit card debts when it’s in their best interest (and we should help them understand when it is in their best interest).