Government Spending

Andrew Sullivan Fooled by Government Propaganda (Who'da thought it?)

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At least Terry Colon's working.

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.

NEXT: CARE Enough to Screw Over Wine Consumers

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  1. As Yakov Smirnoff would say if Branson were big enough to merit a bailout, What a System!

    In America, Government lends you!

  2. “Hey, is this Branson, Missouri?”

    “No, this is Bronson, Missouri.”

    “Hey ma, can we get some cookies?”

    “No dice.”

    “Dis ain’t over.”

    1. “We’re coming up on Branson, Missouri.”

      “What’s that?”

      “My Dad says it’s like Las Vegas, if it was run by Ned Flanders.”

      1. Branson is Vegas for people with no teeth… and you’d better not expect to gamble, either.

    2. My second favorite Charles Bronson Simpsons reference, after the one where he was on Andy Griffith.

      1. “I’m going down to Emmet’s Fix-it shop…to fix him.”

  3. It became seriously difficult to take Sullivan seriously when I read posts of his about Obama that ended with “Know Hope.” during the runup to the 2008 election. Where did the critical thinker go?

    1. Well you know how absent minded a guy can get when he’s “roiding” and thinking about his wedding!

  4. I asked youtube for a better Sullivan, and I got this. It’ll do.

    interpret signs and catalogue
    a blackened room, a thickened fog

  5. As if Sullivan’s bit about Obama and TARP weren’t bad enough he compares it to Obamacare too?

    “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.”

    I’ve reread this but I still can’t believe it. How can anyone be this stupid and still employed by a News Organization?

    Oh right, Hi Pauly!

    1. Yeah, seriously — he never misses a chance to mention how we’ve been saved from a financial apocalypse, and that our healthcare system was resurrected from the dead. And he never provides a single bit of serious analysis to support either idea.

      He’s a stubborn bastard, really. For all his open-minded posturing, the dude clings to his pet narratives like few others.

      1. “For all his open-minded posturing, the dude clings to his pet narratives like few others.”

        this is so true and yet I never really noticed it until you just pointed it out.

  6. “[T]wo years ago, I sure didn’t expect the government to make a profit from TARP.”

    Oh, noes! PROFIT!!! The six-letter curse word! The only curse word worse than “nigger”!

    1. No see profit is good when the government does it because they always have our best interests in mind. Profit is bad when the corporations do it because they forcibly exploit us.

      ** THIS IS WHAT LEFTISTS ACTUALLY BELIEVE **

      1. Not the lefty-left. They hate ALL profit.

  7. Andrew Sullivan’s pronouncements on economic issues are ALWAYS suspect…he and/or his interns never do any serious number crunching.

  8. “[T]wo years ago, I sure didn’t expect the government to make a profit from TARP.”

    The biggest disconnect there isn’t just that he thinks the government made a profit on TARP.

    The biggest disconnect there is that he somehow thinks that if the government made a profit on TARP–that means the taxpayers made a profit on TARP!

    Even if the government had made a profit on TARP–all the money it spent on TARP is still coming out of our future paychecks!

    Even the money that was supposedly paid back to the government–was subsequently respent by the government. They didn’t give us a $700 billion tax cut. They didn’t retire $700 billion in debt. They didn’t cut $700 billion in spending elsewhere.

    That $700 billion was respent–and it’s still coming out of our future paychecks!

    Mr. Sullivan? Hello?

    The taxpayers and the government aren’t the same thing, and even if the government had got its money back–nobody’s even even talked about paying us working stiffs our money back!

    The money for TARP is still coming out of our paychecks. Hello?!

  9. Holy shit, the missing step!?!

    1) Get the government to loan you monay to sit on.
    2) Get the government to buy your toxic undershorts assets to pay back those loans.
    3) The reminder is profit!

  10. I used to actually read this dickweed’s/tube steak aficionado’s blog until I figured out he was also a halfwit. At the time I thought it was refreshing – a self proclaimed conservative who managed to break free of purely partisan views.

  11. My dream is to live in a world where all people, great and small, realize what a fool Andrew Sullivan is.

  12. Sullivan:
    “What’s surprising to me is how pallid is the Obama administration’s spin has been on this.”

    Uh, no. Obama and crew have been trying to paint this as some sort of success for, well, as long as it’s been a failure.
    But ‘fool some of the people…….’
    BTW, any recent numbers on what we’ve poured down the Frannie and Freddie rat holes? I didn’t check the links…….
    Oh, and I’m stealing this:
    “upgraded to a category 5 catastrogeddon.”

  13. This is nothing. What will be really scary is when Andrew figures out how this is all A SECRET CONSPIRACY HATCHED WITHIN SARAH PALIN’S UTERUS!!!1!!!!!!!!1!!!!ELEVEN!!!!!!!

  14. Ok, so the Fed has been secretly buying up MBS.

    Has anyone asked what the fuck they are going to do with all that MBS eventually? Just quietly burn it and pretend it never happened?

  15. Is it really that easy to rob Peter and pay Paul when you’re dealing with carefully watched government funds?

    It helps to have your former CEOs occupying all the key positions in Treasury and the Fed. Crony Capitalism: it’s what’s for dinner.

  16. Lot’s of comments about Sullivan’s lack of critical thinking, but not one about Cavanaugh’s mindless screed on both TARP and Sullivan.

    The reality is that TARP succeeded in its main objective – to stabilize collapsing financial markets.

    Anyone who doesn’t believe TARP was necessary to prevent another great depression is lacking critical analysis skills themselves.

    Unfortunately, now the spin-masters are coming out to lionize TARP and revel at the government’s Midas touch. This certainly needs to be countered, but it should be done so in an honest and sound way, not with a sloppy hack-job like this.

    Here’s an article that does a better job of evaluating TARP:

    http://seekingalpha.com/articl…..ource=feed

    1. I’ve been a way for a while. This guy’s a troll, right?

      1. No, I’m not a troll, just someone who disagrees with Tim on this. Did the article I linked to read like trolling?

        The thing is, there was much wrong about TARP, particularly with how it rewarded bad behavior and created a giant moral hazard problem. I’m very interested in postmortem ideas of better ways to handle a panic in the future.

        But even with the negatives, it’s just not credible to deny that TARP succeeded at its most important objective, which was to stop the panic.

        1. Panics are good and ultimately stabilize markets that have been artificially destabilized and inflated by the government.

    2. That article does nothing to address the point that the Fed effectively substituted for TARP by buying up the toxic assets itself … and not as loans.

      Regardless of whether TARP “saved the economy”, or just the hides of a bunch of large financial institutions, a massive economic injustice was perpetrated. The Federal Reserve, essentially printed over $1 Trillion dollars, and handed them directly over to private hands. Without anyone knowing about it.

      TARP may have “turned a profit” in the perverse sense that it was paid back with money printed by the Fed. Money that was effectively handed over in exchange for nothing.

      If the Fed sells off the >$1 Trillion it holds in MBS and turns a profit, THEN you can declare TARP a success.

      Otherwise you are celebrating a historic ripoff on behalf of the richest people in the world.

    3. I’m a semi-regular Seeking Alpha reader, but I stop reading any article about the middle east as soon as I get to the phrase “in the sand” and any article about TARP when I get to the word “Armageddon” ? which comes in the beginning of the second graf in your link. We all have our ways of cutting bullshit out of our lives. That’s mine.

      My specific point was that the TARP neither saved the banking system (and if you have evidence that the massive increase in distressed small-enough-to-fail banks is better than the alternative, I’m all ears) nor prevented the globopocalyptic disasterclysm (and though everbody likes to forget it now, the actual performance of the economy on unemployment, manufacturing, bank failures and a host of other factors has been worse than the worst-case projections of a TARP-free counterfactual.

      And since you mention the “panic” in another comment: The only panic that took place was among the big Wall Street players. Regular Americans were not even in a hurry to rebalance their investment portfolios.

      I don’t object to bullshit. (I’d have to change jobs if I did.) But at least give me new bullshit.

  17. Has anyone asked what the fuck they are going to do with all that MBS eventually? Just quietly burn it and pretend it never happened?

    I think they’re working on a plan to “sell” it to kindly old Grandpa Buffett.

    1. Likely for much less than they paid for it, I reckon.

  18. Timmy C,

    Haven’t you left this country yet. Just get the hell out of here already, everyone’s tired of hearing you complain you elitist douche.

    1. …What?

  19. Anyone who doesn’t believe TARP was necessary to prevent another great depression is lacking critical analysis skills themselves.

    [Raises hand.] I believe an examination of the timeline will show that TARP funding occurred after the damage was done. If I recall, if the banking system was going to collapse, it would have done so before TARP, so TARP didn’t prevent anything from collapsing.

    Can’t rermember where I saw the analysis, so no linky, sorry.

    1. IMO, there was still a very long way to fall as congress debated TARP in late September and early October of 2008. In fact, the panic was really just beginning.

      A massive but silent “run on the banks” was underway as investors lost confidence in the solvency of the US banking system and were dumping risk assets in favor of US treasuries as fast as they could.

      Here’s a decent description of the bailout act and timeline:
      http://en.wikipedia.org/wiki/E…..ct_of_2008

      Jim

      1. As every bubble comes to an end so does every panic. The smart short sellers who got in early before the panic would be the first to go long when it was at full frenzy. Not everyone follows the crowd. There would be plenty to pick up deals when other investors were running away.

      2. A massive but silent “run on the banks” was underway as investors lost confidence in the solvency of the US banking system and were dumping risk assets in favor of US treasuries as fast as they could.

        Why on earth would they think that the US banking system was insolvent?!?!

  20. The Edward Gorey presentation was great. Loved the music. Stefan Wolpe? Early Weill? I hate it when YouTubers use music and don’t give credit.

  21. Sullivan places narrative over truth. Gets fooled. News at eleven! News at eleven!

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