Andrew Sullivan Fooled by Government Propaganda (Who'da thought it?)
In his Daily Dish blog at The Beastly Baby, Andrew Sullivan catches sight of the TARP Profits Jackalope:
[T]wo years ago, I sure didn't expect the government to make a profit from TARP.
Hey, Sully: Two years ago the government was already claiming it had made a profit on the Troubled Asset Relief Program. It wasn't true then, when ten of the original Naughty Nineteen banks paid back their TARP funds. At the time the taxpayers were still $510.7 billion in the hole on TARP. And that's not counting the array of ancillary bailouts that were in effect then and have remained in effect.
It also isn't true today, even employing the gnat-straining, Clintonian language of bailout supporters. Ethisphere, which put together that $510.7 billion figure, appears to have stopped looking into the performance of the Bush administration's $700 billion bailout. But as Shahien Nasiripour notes at the HuffPost, the only way you can make the TARP repayment number look like profit is if you exclude everything except the payments made to major banks. If you don't, you've still got $187 billion outstanding. That may be less than TARP opponents feared in 2009, and it's nice that the Congressional Budget Office estimates the final cost of TARP (and again, TARP alone, not any of the prior or subsequent bailouts) may be as low as $19 billion. But it's not even close to a profit.
Even this shearing of the taxpayers was only possible because TARP so spectacularly failed to achieve its goal. Here's how Neil M. Barofsky, TARP's recently resigned (and already missed) special inspector general described it last week:
The act's emphasis on preserving homeownership was particularly vital to passage. Congress was told that TARP would be used to purchase up to $700 billion of mortgages, and, to obtain the necessary votes, Treasury promised that it would modify those mortgages to assist struggling homeowners. Indeed, the act expressly directs the department to do just that.
But it has done little to abide by this legislative bargain. Almost immediately, as permitted by the broad language of the act, Treasury's plan for TARP shifted from the purchase of mortgages to the infusion of hundreds of billions of dollars into the nation's largest financial institutions, a shift that came with the express promise that it would restore lending.
Barofsky has more on the failure of the Home Affordable Mortgage Program, and here's more on why it failed, how Treasury won't admit that it failed, and why if it hadn't failed we'd be in even worse shape right now. But I disagree that saving homeowners was a major TARP selling point. The program was put in place to save the "banking system," and was widely understood as such at the time. Back then the I'm-not-in-favor-of-these-big-banks-but argument went that if the sucker went down, the United States would experience a calamiclysmic hyperpocalypse—which has since been upgraded to a category 5 catastrogeddon.
So while we're out spending our TARP profits (are they going to send us each a check like George W. Bush used to do?), suck on this: A few months after TARP was passed, the FDIC's Unofficial Problem Bank List contained fewer than 400 institutions. Now it contains nearly a thousand. What TARP actually did was not to repair the banking system but to reward the biggest banks, which now control 20 percent more of U.S. banking business than they did before the Great Deleveraging began. As Yakov Smirnoff would say if Branson were big enough to merit a bailout, What a System!
And just how have the Naughty Nineteen managed to pay back the loan? Mises.org community member iamse7en gives the basics in a sadly unread post:
We know that "the bailout" is really bailouts, because there were a number of programs enacted by the Treasury, FDIC, and the Fed. Here is the tally of all recovery programs (that we know of, because we discover the Fed did a lot more secret bailouts, and they've only revealed a portion) for each institution involved. So here's how it worked. The Treasury gave TARP money to banks. (It was originally supposed to be used to buy toxic assets, but was changed to just be a simple handout.) The Federal Reserve created money, and used that money to buy these toxic assets from the banks (not at true market value of course, and it was a BOATLOAD of money), and then the banks used some of that money to "pay back" TARP. Then, Geithner calls himself a genius for bailing out the banks, at a profit.
Of course, the cost of the bailout is only converted into inflation, severe capital distortion, and other unseen costs.
If you want an example of how this worked for Goldman, read this fascinating report.
Is it really that easy to rob Peter and pay Paul when you're dealing with carefully watched government funds? Big Yes, says Reason.TV:
The never-informed Sullivan plunges on in his heedless way:
What's surprising to me is how pallid is the Obama administration's spin has been on this. I never hear them bragging about how they managed to pull us out of the economic nose-dive we were facing. I know why: the recession isn't over, even if TARP was a success, no one wants to hear about it, etc. But it's one of the strongest and least valued part of Obama's record—along with the cost control innovations in health insurance reform.
At some point, you have to stand up and defend your record. No doubt Obama is biding his time on this. But count me as surprised as I am impressed.
Hmm, why isn't President Obama bragging about the TARP? Maybe because TARP was approved before he was elected. Or maybe because you can't brag about failure. Or maybe, just maybe because the voters were, and are, right about this one: TARP smells like a rat because it is a rat. And as for the "economic nose-dive we were facing" (will this kind of flapdoodle never end?), where is the evidence that we did not in fact take an economic nose-dive? Unemployment is 33 percent higher than it was when TARP was signed, and all over this great land evidence of increasing business activity remains impossible to find.
How's that for bragging rights: We didn't just fatten up the biggest, dumbest players on Wall Street; we also took a long-overdue correction in the credit market and stretched it into a half-decade of national stagnation!
It's pretty sad when government apparatchiks understand they have a turd on their hands but supposedly independent-minded columnists don't.
Update: Now you're thinking: "OK, Sully's this inexplicable figure who gets more people listening to him the more often he is shown to be wrong. But surely he's the only one. And nobody else would be enough of a chump to believe the TARP profit story, right?" Hold your horses! It's the Great Frumkin, Charlie Brown.