Three Cheers for Bailouts
Anger is one thing, but emotional judgments made in haste could mean huge problems down the road.
There’s a time and place for anger, and many Americans think the Nov. 2 elections are it. No one can doubt that frustration over the economy is justified, but lashing out at anything and everything isn’t a very constructive use of that anger. It has to be aimed at the right targets and channeled to support constructive policies. The worst thing to do -- and this is where we seem to be headed -- is to aim the anger at policies that actually worked, especially when, heaven forbid, we may need to resort to them again in the future.
Yes, I’m talking about TARP -- the much maligned Troubled Asset Relief Program -- which is finally drawing to a close. Better known to most Americans as the bank bailout, TARP has become an albatross for any member of Congress who voted for it. It brought down several Republicans -- Sen. Bob Bennett in Utah and Rep. Mike Castle in Delaware, to name two -- in the primaries and it will likely bring down a slew of Democrats in the general election.
That is more than strange. TARP worked. Created by the Bush administration and expanded under President Obama, TARP was a rare instance of bipartisan agreement to save the economy from what looked to everyone like an international disaster. By moving quickly and forcefully once the dangers were fully understood, the government prevented a far worse recession -- perhaps even a depression -- than the one that was suffered, which was pretty awful. TARP was arguably one of the most successful government interventions in decades -- and one that was necessitated mostly because the private sector acted irresponsibly in the extreme. To be sure, government regulators are to blame for failing to see the crisis coming and for failing to have the right safeguards in place, but no one can seriously blame the government for causing the crisis.
What’s more, it was done on the cheap. Most of the $700 billion allocated for the program has already been repaid, and when all is said and done, it’s even possible that TARP will prove to be a net moneymaker for Washington.
The flexibility of the TARP program allowed the government to move swiftly for a second bailout under President Obama -- that of the auto industry. It’s unclear how much of the $85 billion used to bail out General Motors and Chrysler will be recouped by the Treasury, but there’s little doubt that the move saved the American auto industry. Yes, there’s still a long way to go, and many investors and workers took a big hit. But nothing like the hit the entire U.S. economy would have taken if the two companies ceased to exist.
What’s sad is that so few public officials make this case. They’ve been cowed by public anger -- stoked mostly by talk show hosts, the Tea Party and conservative Republicans who want to ride voter fury at big banks and frustration with high unemployment to further their ideological battle against big government. Never mind that Republican leaders like Rep. John Boehner of Ohio and Sen. Mitch McConnell of Kentucky voted for the plan at the urging of President Bush. They did the right and necessary thing then, as did many others on both sides of the aisle. But the public wants to take out its fury on someone, and those who supported TARP are prime targets.
The long-term implications of this are scary. If we run into some new crisis during the next decade, policymakers may be too afraid to intervene no matter how much they might need to. They’d fear the fate of the Bob Bennetts and Mike Castles. And that leaves us hoping that private industry will act more responsibly than it did in the years leading up to the 2008 financial crisis.