TARP for Fun, But Not Profit

During the economic policy speech he just wrapped up, President Obama said that the Troubled Assets Relief Program (TARP) "is going to reap billions in profits."

Hooey.

Give the administration credit: They're right that TARP will cost less than anticipated, by about $200 billion. This is mostly because a bunch of banks are paying back the money (sometimes money they never wanted in the first place) with interest and ahead of schedule.

But then take the credit away again. Obama intends to spend the money "saved" from the TARP allocation on a jobs program, which will include bridge building and an always-popular provision to help people weatherize their homes.

This assesment from CNN keeps things in perspective:

The American public is still expected to incur a massive loss in the end—the question is just how much it will be. A separate estimate issued earlier this year by the Congressional Budget Office warned that TARP will ultimately cost taxpayers approximately $159 billion.

To review: TARP will cost $159 billion outright, and we're going to spend another $200 billion on a jobs program. Profit!

I wrote about TARP and The New York Times' confusion about the definition of "profit" here in September. 

Comments

[John H]

You're missing a couple "b"s on that review section in the end. It's not 159 Million, it's 159 Billion.

[Barack Obama]

A profit hath no honor in its own country.

[Dello]

Million, Billion...who cares? It's not real money until its in the Trillions.

[Tman]

Obama said that the Troubled Assets Relief Program (TARP) "is going to reap billions in profits."

This isn't so surprising, despite the fact that it has no bearing on reality whatsoever. Remember "This was the moment when the rise of the oceans began to slow and our planet began to heal"? Good stuff.

As Stephen Den Beste put it so eloquently over at HotAir yesterday, we have a president who is a teleologist.

Way back in the depths of time, Greek philosophers ended up with two basic and incompatible ways of looking at the universe. One way was materialism, which says that there is a material universe which behaves in a consistent way, and if you study it you can learn the way it works.

That's the world view of engineers and scientists ? and businessmen, for that matter. It's the world view of people who understand and use mathematics, and statistics. It is a place where cause leads to effect. It's the place that game theory studies. It isn't necessarily inherently atheistic; a lot of religious people live in the materialist world.

But there are people who don't. A different epistemological view is teleology, which says that the universe is an ideal place. More or less, it
exists so that we humans can live in it. And human thought is a fundamental force in the universe. Teleology says that if a mental model is esthetically pleasing then it must be true. Teleology implies that if you truly believe in something, it'll happen. Wikipedia says:

A teleological school of thought is one that holds all things to be designed for or directed toward a final result, that there is an inherent purpose or final cause for all that exists.

And in its modern form that final result is presumed to be creation of a world of peace and harmony, a utopia, in which all men live in peace and brotherhood, in harmony with nature...........Matthew Continetti says that we're in "a year of magical thinking." And to someone who has grown up with a materialist view of the universe, it could certainly seem that way. But what's really going on is that Obama has this kind of world view. And that explains everything he's done.

It explains his foreign policy. To a teleologists, it just makes sense that everyone should want to get along. If you unclench your fist and hold out
your hand, everyone else will unclench their fists, and become your friends. So Obama is doing that, and as we know the result has been a shambles.

It explains his economic policy. Teleologists inherently don't believe in unintended side effects when it comes to implementing their idealistic policies. Obviously it should be possible to provide free health care to everyone without wrecking the economy; it's just how things really should be, so that's how it will be. Where will the money come from? That's the kind of question that materialists ask; teleologists don't concern themselves with such trivial. It'll happen somehow, because it's obviously how it should turn out. To say we shouldn't do it is to be heartless, uncaring ? and those things are more important than mundane claims that it won't work. If you just believe, it will work.

Of course, it won't work. The materialists are right about that. But when it fails (if it gets tried) the teleologists will blame the negative vibes of all the materialist doubters for the failure. If only they'd come on board and supported it, then it would have come out OK.

[SugarFree]

Nice link, Tman.

[SugarFree]

Not making fun your linking skills. Just liked the article.

[Tman]

The blogosphere needs more Stephen Den Beste.

[Jesse Walker]

Stephen Den Beste put it so eloquently

Does not compute.

[Tman]

Why not?

[Tman]

Why not?

[Tman]

Why not?

[Tman]

Does not compute.

You don't think he explains it well? Or you just don't think he's eloquent?

[Jesse Walker]

You don't think he explains it well? Or you just don't think he's eloquent?

I don't think he's eloquent. Though I'm not impressed with the thesis either. If you want to criticize the way Obama thinks, you should present his actual arguments, using links and/or quotes, not a bunch of self-congratulatory caricatures.

[Tman]

Unclenched fists? Taking over GM?

He gives examples. You should read the whole article instead of dismissing it so readily. The thesis makes a lot of sense if you actually read it.

[Jesse Walker]

He gives examples.

He gives caricatures. "If you unclench your fist and hold out your hand, everyone else will unclench their fists, and become your friends"? Does he really think that sums up the thinking behind the "unclenched fist" speech?

Also, the man does not know what teleology means.

[Kolohe]

You may not like his opinions, but the man can write.

(esp for an engineer)

[Kolohe]

and for the record the teleology vs materialism thing is a bit of Team Red fandom.(or at least reflexive anti-Obama-ism)

for instance this is just silly

It explains his foreign policy. To a teleologists, it just makes sense that everyone should want to get along. If you unclench your fist and hold out your hand, everyone else will unclench their fists, and become your friends. So Obama is doing that, and as we know the result has been a shambles

You could definitely make the same charge against the Bush administration for frequently treating the world as they thought is ought to be*, rather than the way it is.

*heck Rush wrote a book with this as the title.

[Tman]

You could definitely make the same charge against the Bush administration for frequently treating the world as they thought is ought to be*, rather than the way it is.

Could you explain what you mean? I thought Bush tried to deal with the world in a material sense, as in we should deny material assistance to terrorist groups in any way we can. If that means destroying the nations that hide and abet their actions than that's what we need to do.

What part made Bush teleological?

[Kolohe]

The idea that you can sweep away the old regime in a country, and that spontaneous order would give rise to desired (or even desirable) endstate.

Also, for many years, steadfastly ignoring (or at least taking no action on) reports of a deteriorating situation.

[Kolohe]

And while I think Bush gets an outsized amount of blame for Katrina (both the experience in the Mississippi side as well as four straight hurricanes the previous year in Florida demostrate that local emergency management procedures are important and necessary, 'heck of a job Brownie' demonstrates a very poor reading of the situation.

[Tman]

The idea that you can sweep away the old regime in a country, and that spontaneous order would give rise to desired (or even desirable) endstate.

I don't think this was the idea in question. Bush and congress agreed that these regimes were MATERIALLY harmful to our existence, therefore they need to be swept away. Ideally a better system replaces it, but the status quo was unacceptable.

Also, for many years, steadfastly ignoring (or at least taking no action on) reports of a deteriorating situation.

I agree that this was a problem, but not necessarily a result of pretending problems didn't exist. The president received daily status updates for each conflict every morning, I'm sure he was well aware of what was going on. The action he proposed in the surge was roundly panned by most Democrats including our current president.

[Tman]

Not sure why this didn't work, but here is the link for the above-mentioned SDB-HotAir article-

http://hotair.com/archives/200.....-thinking/

[nobody special]

This discussion is demeaning me!

[Ken Shultz]

"To review: TARP will cost $159 million outright, and we're going to spend another $200 million on a jobs program. Profit!"

Yeah, that's $159 billion and $200 billion respectively.

Also, it is not entirely clear to me that the TARP money the President wants to use for this jobs program is money they've collected back from banks and others. I believe this is $200 billion that is going unspent.

"In fact, Treasury estimates that over the next decade TARP will cost $141 billion at most, or $200 billion less than the $341 billion the White House projected in August."

http://online.wsj.com/article/.....TopStories

By the way, I think the President's a jackass and I oppose squandering my future earnings this way. I'd much rather see it all go to deficit reduction or tax cuts, but I want to make sure that we're calling him a jackass for all the right reasons.

You might notice, as well, that TARP was a lot bigger than the difference between $200 billion and what they had budgeted too--and if you look at the rest of that article, I think you'll find that he's talking about using a lot of the balance for deficit reduction.

[Ken Shultz]

By the way, I'm a big fan of deficit reduction, but I think I'd rather spend it on a jobs program, at this point, rather than squander it on gold to back up the currency.

Can you imagine if our leaders were so stupid as to squander tax payer money on gold, at these prices, when the world's still willing to lend to us for ten years at 3.38%?

[Old Mexican]

Re: Ken,

Government expenditures do not create jobs. If you talk about government jobs, those are not productive, i.e. they are a waste of resources.

[Ken Shultz]

I'm not in favor of this jobs bill or any other jobs bill, but there is some stimulative effect to the economy.

I was comparing that to the purchase of gold.

And as dumb as the jobs bill is, I'd rather they use our money for that than squander it on gold.

But, yeah, I know. Jobs bills suck.

[Old Mexican]

During the economic policy speech he just wrapped up, President Obama said that the Troubled Assets Relief Program (TARP) "is going to reap billions in profits."

And here I thought that profits were a "bad thing."

Barrack Hussein Obama - Hmm, hmm, hmm.

[Inkblots]

Step 1: Plan to lose 300+ Billion taxpayer dollars investing in toxic assets.

Step 2: Use windfall from any unrealized losses to buy several thousand tons of insulation as a free giveaway with select recipients' deliveries of government cheese.

Step 3: ????

Step 4: Profit!

[hank]

How on earth did those financial institutes make all that money? Investing in solar panels. That's fantastic. I just got through finishing a business plan whereby I borrow money from my friends and family at 0% interest and then loan it back to them at higher rates, then repay them with my profits. Any takers?

[OMG]

+1

[OMG]

+1

[The Gobbler]

"A teleological school of thought is one that holds all things to be designed for or directed toward a final result, that there is an inherent purpose or final cause for all that exists."

So Obama believes in Intellegent Design?

[Old Mexican]

No, he simply believes his designs are intelligent...

... and I have to stress the point, that's his belief.

[SugarFree]

It's the same sort of logical flaw. The principle is called entelechy and it leads to crap like misunderstanding the notion of market failures and say stupidities like "the free market will never provide free health care!" like it is a profundity. The market has no outcomes built in to it. Evolution has no outcomes built in it to.

It's not a fault in the apple tree that it doesn't grow pears.

[Barrack Obama]

It's not a fault in the apple tree that it doesn't grow pears.

But it is the fault of the grafter - Bush!

[P Brooks]

During the economic policy speech he just wrapped up, President Obama said that the Troubled Assets Relief Program (TARP) "is going to reap billions in profits."

Maybe the Presidential Suit should get Orszag to take him someplace quiet, and explain what "profit" actually means.

[Ska]

I'd tarp that arse.

[R C Dean]

Lets be clear, as well, where that $200 Billion came from. Whether it is money that was paid back, or money that was never spent, it shows up because the FASB told banks that they could carry toxic assets on their books at notional values, rather than market values.

So, basically, the whole problem of toxic assets that TARP was supposed to solve was just waved away, papered over.

So, are these values any good? Are the banks sound? Highly unlikely, as banks continue to fail on a weekly basis, and those that fail require higher and higher levels of FDIC support to unwind.

[Paul]

My man RC, always bringing the hurt parade.

And this is exactly the perspective that everyone needs to keep an eye on.

In addition to other intangibles, you have entire corporations that shouldn't even exist anymore. It's been pointed out before on teh H&: if GDP would have grown 2.5%, but due to government interference it only grows by 1.5%, that's not a growth of 1.5%, it's a loss of 1%.

[OMG]

As usual, you are right on. But wait, the problem is worse:

Changing mark to market was only step one, the step that enabled banks to somehow become magically solvent overnight

They know that all of the bad mortgage derivative debt that they are holding will never recover nearly enough value for them to be solvent once marked to market. But it would be politically unacceptable to hand the banks outright TRILLIONS (not the billions pocket change of TARP) with no repayment all at once. So they are doing it slowly through zero interest rates at the Fed window as far as the eye can see - rates at which the banks can borrow from the Fed and lend back to the Treasury at a 1.5-2.5 spread. Those profits, over 2 to 5 years (I guess the plan is) will recapitalize the banks and eventually enable them to write down the toxic assets without going bust.

Now of course, all of this does not come without a price. It has caused a huge bubble in Treasuries (and just about every other asset class on the planet other than US real estate). In addition, the artificially low interest rates are a real tax on savers (and a huge disincentive to saving) - you have 100k in bank accounts? You just lost 2-3K of interest that Bernanke is essentially taking out of your pocket and handing to JPM and Citi to balance their books.

[jesse]

i just read that whole thing with the voice of butters

[jesse]

I know thats tweak but i just cant get butter out of my head.

[Anomalous]

Yeah, great job putting up a picture of the Underpants Gnomes.

[Dello]

You guys are way smarter than me, and I'm not even sure how to phrase this question, but here goes:

We are currently taxing the next 6+ generations with all this bailout crap and health care, based on the assurance that in just a few years it will make a profit (or at least break even).

So the question is: Did anyone foresee this as a bad idea back in the 30's with all the social programs, or the 60's (I think) with Medicare?

Basically, is there something I can point to where we were actually warned this would happen?

Thanks

[Old Mexican]

Re: Dello,

So the question is: Did anyone foresee this as a bad idea back in the 30's with all the social programs, or the 60's (I think) with Medicare?

Many foresaw the coming debacle (like the economists of the Austrian School), but politicians only care about the short term because it is in the short term that they get elected.

Read "Democracy: The God That Failed" by Hans Herman Hoppe. He explains the destructive process in great detail.

[Hank]

Yeah, the fucking irony in those idiots chastising executives for short-term thinking.

Why listen to an Austrian School economists when you have Krugman. I'd like to vomit on his face. Is that wrong? Or at least see someone vomit on his face. That couldn't be wrong.

[Mad Elf]

I read the other day that we will get 90% back on the TARP money. Where do I get to sign up for these -10% loans?

[ed]

Obama saved or created $200 billion. It's a Christmas miracle!

[Mad Max]

I wonder if Sarah Palin had any views on TARP?

Oh, and . . . Sarah Palin Sarah Palin Sarah Palin Sarah Palin Sarah Palin Sarah Palin Sarah Palin Sarah Palin Sarah Palin

[Paul]

It doesn't matter whether the taxpayers workers lose money, all that matters is if the fedeeral government company make a profit.