Yes, the bipartisan effort to save the economy worked

The cool thing about the massive Federal intervention that saved the US economy is that we can talk about it — at least in part — without talking about politics.

Obviously, TARP and the bailouts and the Obama stimulus plan were all political in a way.  They helped spark the tea party movement, which is transforming this year’s election.

And liberal groups are still fuming about the amount of money that Democrats funneled to Wall Street banks.

But those efforts were also fundamentally bipartisan, launched under Republican President George Bush, continued by Barack Obama’s Democratic leadership, and approved by both parties in Congress.

So the question isn’t whether one party or another is culpable for foisting these policies on the American people.  The question is…did they work?  Were they the right thing to do?

Despite the deep conviction held by tens of millions of voters that the programs were a bust, most experts say the answer is a fairly unambiguous Yes.

Let’s start with effectiveness:  Was it necessary for the Federal government to intervene in order to stave off a much worse recession — or even a full-blown depression?

Here’s what Douglas Elliott, a former investment banker who now works with the Brookings Institute, told the New York Times.

“It was probably the only effective method available to us to keep from having a financial meltdown much worse than we actually had. Had that happened, unemployment would be substantially higher than it is now, the deficit would have gone up even more than it has.

But it really cuts against the grain for a public that is so angry at banks to think that something that so plainly helped the banks could also be good for the public.”

Elliott’s assessment is shared almost universally by economists — even most conservative ones.

The widely held view is that a full-blown depression would have taken down even many healthy parts of the economy, triggering a downspiral of layoffs, homeforeclosures, unemployment and bankruptcy.

So how about cost?  Were the bailouts and stimulus funds too expensive, or were they doled out unfairly?

Here the answer appears to be No.

It now appears that the ultimate cost for the TARP program will be around $50 billion — far less than the $700 billion once feared.  (It’s even remotely possible that the bailout will generate a small profit.)

That’s because many of the companies propped up by the Federal government — from Citigroup to AIG — are fairly healthy again and they’re paying back the money they owe taxpayers with interest.

Meanwhile, the White House is trumpeting a new report that shows fraudulent activity as part of the Stimulus program was extremely low.  This from the Washington Post.

“Certainly, the fraud and waste element has been smaller than I think anything anybody anticipated,” said Steve Ellis, vice president of Taxpayers for Common Sense, a nonpartisan watchdog group.

“You can certainly challenge some projects as questionable economically. But there haven’t been the examples of outright fraud where the money is essentially lining somebody’s pocket.”

Indeed, many of the lawmakers most critical of the stimulus money have trumpeted the actual projects funded in their home districts.

But what about the socialism question?

As a matter of principle, isn’t it dangerous for the Federal government to own big chunks of stock in major corporations?  Isn’t this a sign that our free market system is being usurped?

Two years after the crisis began, there’s actually no evidence of this.  No one has accused the Obama administration of attempting to actually run these companies, or sway their decisions.

On the contrary, the government has cashed out its holdings as quickly as possible.

Despite all these successes, the Federal intervention in the economy remains unpopular for four reasons.

First, it was unfair.  Even the Obama administration acknowledges that they bailed out people who behaved poorly.  In the words of Treasury Secretary Timothy Geithner, “It wasn’t fair, but it was necessary.”

Second, the program hasn’t returned us to normalcy.  A lot of people are still suffering with nearly 10% unemployment.

It’s only fair to point out, however, that Franklin Roosevelt’s New Deal (also approved with bipartisan support) worked much more slowly.

Third, Americans are legitimately terrified by the level of national debt and this Federal intervention has come to be seen as part and parcel of our slide into penury.

Most economists are convinced, however, that a depression — or even a more ferocious recession — would have made our debt load far worse, by slashing the number of taxpayers.

Finally — and perhaps most ironically — the program is hated because it was a bipartisan effort.  That means everyone sees something here worth hating, from the liberals who hate Wall Street to the conservatives who hate socialism.

In the end, it’s doubtful that the Federal government’s laudable track record– and the praiseworthy performance of Presidents Bush and Obama — will count for much.

The vast majority of Americans will go on seeing their government as the problem rather than the solution, unaware that this time the Federal safety net caught us all.

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28 Comments on “Yes, the bipartisan effort to save the economy worked”

  1. DBW says:

    What is too bad is that “W” didn’t sustain the surplus and/or use it to fix social security. It is also unfortunate he did not make a “guns or butter” choice on Iraq, asking the public to support it financially through higher taxes. (I suspect there would have been widespread opposition and that is why he didn’t do it). THEN when the crisis did hit in 2008 we would have been in far better shape to whether the storm with short term deficit spending. I still want to know where all these people now worried about deficit spending and the national debt were back then.

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  2. Bret4207 says:

    So here we sit with 17-20% actual unemployment, 50% of under 25 workers unemployed, 60% of last years college grads unemployed a growing deficit and national debt and the remaining TARP, etc. money sitting in a giant slush fund and somehow people can see this as “better” or “successful”? We rewarded bad behavior. We really taught them a lesson boyo!

    This is a case of of justification. We have no idea what would have happened without it, all we can do is speculate. It’s a much surer bet that had gov’t policies not encouraged or mandated ridiculous lending practices, if politicians had not had their fingers in financial dealings they didn’t come close to understanding (or they did and are criminals), if some conservative lending practices had been used then much if not all of this would have been entirely unneeded.

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  3. Anita says:

    I agree that TARP worked to prevent our economy from collapsing. It was a short-term solution to a fast-moving crisis. It did not fix some big, underlying problems in our economy, and those problems are still dragging down our economy. It’s going to take a long time to fix them – they were 30 years in the making.

    Good post, Brian. You hit the nail on the head with your last sentence.

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  4. TurdSandwich says:

    I’m a skeptic. The economists that claimed the entire system would collapse are working or have worked for the same institutions that were bailed out. We’ll never know what would have happened without the bailout. We can only trust the “experts” which lately have been misleading us. However, I probably would have gone along with it to be safe. Damned if you do, damned if you don’t.

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  5. Paul says:

    TARP has had some very positive effects. One big question now is what will the government do with the money they are getting back? Will they use it to pay down the debt that we incurred for the program? Or will they pour it back intro some other program?

    Here is a question someone pointed out to me. How did the analysts at the treasury department predict in 2009 that TARP would lose 341 billion dollars, then revise that number one year later to 50 billion? No one in a private financial firm that made those predictions would still have their jobs. It really makes you nervous about who is running the show.

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  6. Bill king says:

    the poison and cure are concocted in the same labratory by Frederich Bastait. the federal reserve created the problems and then you say that they saved us. You should read some Ron Paul Books. It’s obvious you are listening to too much public radio.

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  7. oa says:

    Brian, I thought the Tea Party hated the bankster bailout as much, if not more than, the liberals. Or is the Tea Party a bunch of leftists?
    I think this is a case again of trying to defend false “the left hates this, the right hates that, the middle is always juuuust right” conclusions.
    I agree with Bret. This hasn’t worked, at least not for a great number of Americans–a million of whom have lost their homes, and tens of millions of whom have lost jobs and can’t find new work. But I’m on the stimulus-was-far-too-small side of the argument. Government should be borrowing more, right now, since interest rates are so low, and rebuilding stuff like the sewers that can’t handle the flow from yesterday’s flooding. That would create jobs, which would create demand, which would create confidence, which would finally unleash some of the cash big corporations have been hoarding into the private sector. And as Clinton showed us, boom times make it easier to pay down government debt. Especially when it’s borrowed at historically cheap interest rates. See this:
    http://www.nybooks.com/articles/archives/2010/oct/14/way-out-slump/

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  8. verplanck says:

    Paul,

    The banskters who defrauded investors around the globe are still at work, and pulling in the same bonuses they had pre-crash. Private enterprise isn’t inherently good.

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  9. knuckleheadedliberal says:

    The TARP and other bailouts were an emergency response to a crisis that developed over a long time but was entirely predictable just like an earthquake is predictable at a particular location; it was bound to happen but nobody knew exactly when it would happen.

    The underlying problem is the idea that we have a free market system. In a free market system an ordinary intelligent person can understand the pros and cons of a particular trade/ sale/ deal/ whatever and that the ordinary person has a choice. In our current system Wall Street bankers, investment groups, whatevers hire Phd mathematicians to create investment vehicles/deals that nobody can understand. They work with physicists to cook up computers to give split second advantages on trades. The schemes go on and on without any real connection to creating a better marketplace but simply to derive the greatest financial advantage.

    Where can an ordinary person put their money if they want to save for the future, earn interest that keeps pace with inflation, be relatively safe, and not be available for speculators to leverage in crooked schemes?

    A whole system has been built up in this country that brainwashes people into believing that they can be rich, that they are part of the investor class, that they are the sainted and omnipotent Shareholders before whom all must bow. In fact they are the rubes who provide cash for a few to grow very wealthy with. If the government had given tax incentives to put cash under your mattress for the last 20 years millions of Americans would be better off at this very moment.

    Why can’t the government mandate that banks must provide an individual savings account that pays 3% interest?

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  10. Paul says:

    verplank, “Private enterprise isn’t inherently good”. I hope I didn’t give that impression in any comment I wrote?

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  11. Paul says:

    knuck,

    “Why can’t the government mandate that banks must provide an individual savings account that pays 3% interest?” Keep it in your mattress man. After tax you have nothing.

    I know most folks hate them but these guys are “market makers” without it we would have no money to stuff in the mattress. That is why we bailed them out, that is why other banks in other countries did the same thing.

    Are you telling me that folks have no choice? They had to take the “no income, no asset” mortgages that were being offered? That folks had to sign on the line for a mortgage they knew they could not afford? There is some blame to go on the sellers, no doubt, but to not lay some on the foolish buyers is silly. “A fool and his money are soon parted”, you can blame it all on the smart guy that took your money but that doesn’t make the other guy any less the fool.

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  12. Bret4207 says:

    Knuck, rather than mandate banks pay you 3% (why not 5% or 15% or50% if we’re mandating?) why not make that savings interest completely tax free? The same idea would be accomplished and it would be a far more honest way of doing things too. Same for capital gains that are reinvested and probably some other things.

    OA, according to the article a good deal of the money has been paid back. We shouldn’t need to borrow (print) more. There are thousands of infrastructure projects that are allegedly “shovel ready”, why aren’t they being worked on? For that matter I’m positive there are literal “pick and shovel” jobs around the country where a whole lot of able bodied men and women could be employed at good, honest labor. Why aren’t those types of jobs being done? The left loves to speak of the wonders of the CCC and WPA under the Sainted FDR. I imagine it would do a great deal of good for our soft and whiney youth to get out and earn some callouses. Why not establish some labor camps and kill 2 birds with one stone. I’m sure it can be done. The only stumbling block might be the every bleeding heart that would see this as virtual slavery. Imagine, having to work to earn a meal….

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  13. knuckleheadedliberal says:

    Paul, the problem in the mortgage market was that nobody was minding the store. People were playing very fast and loose on ALL sides and the people who were hurt the worst were the most unsophisticated people who might have had a modest house and were convinced to refinance it in a scheme that ended up with them on the street. Not everyone is very smart about their money, but that doesn’t mean that sharks should be allowed to steal it from them.

    Nor am I saying that banks must create unlimited accounts. It could be set up that individuals get only one account with a cap. As for being ”
    market makers” the complaint was and has been that there wasn’t enough liquidity in the system. People’s cash in banks would help with liquidity for banks to loan to small businesses, home loans.

    I’m not trying to fix everything with one idea, but it would be an important step to allow people to choose another way of investing…one that offers an alternative to Wall Street. Absence of choice is not a free market.

    Bret, it was just a suggestion. I’m open to other ideas that would accomplish the same thing…choice for the people. But capital gains are only taxed at 15% as it is; most people would LOVE to have much of their income taxed at only 15%.

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  14. knuckleheadedliberal says:

    Also Bret, 3% is sort of an average rate of inflation. It is enough that savings would remain constant or increase slightly but banks could still make a small amount of interest by loaning that money out at 5 or 6%.

    And reinstate usury laws!

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  15. oa says:

    Bret, I’m not sure how to answer what you wrote, other than, I don’t think my post means what you think it means.
    Speaking of FDR, there were so many switchbacks in your comment, reading it felt like being on a the Whiteface Memorial Highway.

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  16. Bret4207 says:

    OA, you mentioned you felt the stimulus/TARP/etc should be used on infrastructure, I agree. I just thought on the 20% of unemployed people out there, many of whom might be suitable for standing on a shovel handle and making better than minimum wage. Why not use the money to kill 2 birds with one stone? Yeah, I know it won’t happen, but in theory it’s just what we should be doing.

    Knuck, it’s interesting that some economists were complaining when the savings rate and credit card payoff rate got higher. Kind of odd when one economist says we’re saving too much and another says we aren’t saving enoguh. Weird, eh?

    Most people today consider 3% unworthy of bothering with. They’ll play the lotto though!

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  17. knuckleheadedliberal says:

    What is really weird is that no matter how many times some economists are wrong NPR and other media outlets will still quote them as “experts.”

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  18. scratchy says:

    What do all economists have in common?
    They’re all usually wrong in their prediction. Frankly, I’m skeptical off all these “experts” and their foolishness. Didn’t the “experts” tell us that unemployment wouldnt go above 8%, that Iraq had weapons of mass destruction, that Afghanistan was all settled, the NYS pension fund was overfunded, and that there was a 10 year 5 trillion dollar surplus for 2001-2010?
    The truth is no one- not Brian Mann, Obama, or anyone else- can say what would have happened without TARP.

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  19. dan3583 says:

    A real advantage of those who think TARP was a mistake is that we don’t have the luxury of comparing the results to what would have occurred had it not been implemented.

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  20. Bret4207 says:

    True Dan, but we can see the results. Our dollar is worth less, our unemployment continues to climb, our bond ratings suffer and overall it was just a political answer to a non-political problem.

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  21. Mervel says:

    We used to have a very good system for moderate savings accounts and local mortgages. It was called the Savings and Loan system. Savings and Loans were not for profit institutions designed and regulated by the government to encourage thrift and provide well regulated safe standard home mortgages. The interests rate spreads were controlled by the government. This worked very well from 1930’s until the 1980’s. Then they were deregulated and of course it all went to hell at that point as the robbers took over. The free markets system can work and does work, but we can’t have it both ways. In the savings and loan example after de-regulation the banks still had the government to bail them out so just like in Russia we have privatized gains and public losses. I would like to see a return to the regulations of the 1940’s and re-establishment of a true savings and loan industry, but that won’t happen. It won’t happen because this administration will not go against the banking industry in any real way.

    For me I think the intervention was probably needed I think we had to do something. However I think it was done in a corrupt way it was done by picking winners and losers by the government based on who they liked and who would help them. GM got help they have a big union, Toyota did not get help, they don’t have a union. Lehman brothers got nothing and was allowed to fail, Goldman Sachs was saved and made out quite well, Goldman Sachs people populated the Obama and the Bush administrations, in fact they were one of the biggest single contributors toward the Obama campaign.

    The government institutions such as Fanni Mae (sp?) that were deeply involved in causing the mortgage crisis have gotten no real scrutiny for the fraud and abuse inherent in those corrupt organizations. Of course leading politicians were part of that and they are going to hide any wrongdoing.

    People just see this sort of thing and they think the whole thing is one big bogus fraud. Even if it worked. I think our free market is starting to look more like crony capitalism than a true free market.

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  22. Bret4207 says:

    Good post Mervel.

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  23. oa says:

    Mervel,
    I think your auto part of the post is inaccurate. “Toyota did not get help, they don’t have a union.” Toyota, as I recall, did not need help at the time of the auto bailout, as Prius sales were booming. They slumped later, and asked Japan for aid. In any case, all those Toyota plants in the South are there BECAUSE of US government “incentives,” and BECAUSE Toyota had less or no union representation in those regions.
    Finally, if unions were such a consideration, why was Chrysler allowed to go belly-up?
    OK, not finally. the fact that the GM-affiliated lending entity, GMAC, had so many bad loans on its books had IMO a lot to do with that bailout. It could be seen as a part of the bank bailout, actually.
    Which I didn’t agree with, by the way.

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  24. oa says:

    Thank, Bret. I’m more clear on what you said. I agree. Plenty of work to be done. Put people to work doing them.

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  25. oa says:

    And Mervel, totally with you on the S&Ls. But they got dereg’d and raided. Just like Bret’s pension is about to get raided.

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  26. dan3583 says:

    Brett, You kinda make my point for me…you’re implying that TARP cuased those effects, when we can’t possibly know if we wouldn’t be in exactly the same boat (or worse) had we not implemented TARP.

    Correlation is by no means causation, and I know you know that.

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  27. mervel says:

    Hi Oa,

    Chrysler was given to the Union by the US government; the Union now owns a majority stake of that company. I am not a union basher they are needed and are a part of our economy, but come on the US government should not be in that type of business of handing out winners and losers; it reeks of corruption.

    My point which I did not really make very well or clearly, was that if we are going to help US based car manufacturers then we should have helped them all equally we should have helped the entire industry. All car companies that operate in the US should have been given a grant or loan. What is the point of just helping the companies that are poorly run and managed or are the best at demanding government money or the best at flexing political muscle?

    The free market is about the best companies the most efficient companies the lowest cost producers being rewarded for giving consumers what they want in the most efficient manner. GM did not do that, they built huge gas guzzling trucks with a clueless overpaid management and a bloated work force. So what did they do, they got our taxes to make up for their bad decisions. So here we go; private gains the bosses all kept their salaries and the losses are given to the public. That is the essence of crony capitalism that is what they would do in Russia. So the US government made a decision that auto workers in Detroit are more important than auto workers in Tennessee or South Carolina. The best thing for the US markets would be for GM to break up or go bankrupt and the market share they have would be served by better companies, Ford, Toyota, Kia, whatever who would sell more cars and employ more people. But it was a political decision not an economic one in my opinion. I think that is the kind of thing that makes people mad, not necessarily that we intervened.

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  28. Bret4207 says:

    Not exactly Dan, I’m saying that in spite of TARP and the bailouts we’re in the condition we’re in. The enormous amounts of money that we printed (created out of thin air actually) caused our worldwide buying power and worth to drop. It helped to make our products and commodities worth less.

    I would agree with everyone that says the various bailouts were an attempt to stave of the effects of poor decision making. But all it does is transfer debt to the taxpayer, an already “hurtin’ unit” in the vernacular of my youth. I wonder what would have happened if we’d let nature take it’s course and let GMC and Chrysler fail, let the big banks that screwed up fail. That’s essentially what happened over the decades to the rail industry, steel, all our large industrial pursuits. We still have rail service, we still have steel, abrasives, chemicals, etc. Is poor decision making and unrealistic union demands an excuse for a bailout? Is unwise borrowing and lending an excuse for a bailout? Not in my world. No one comes and rescues the common man from credit card debt, variable interest mortgages and sheer overspending. Why do corporate giants get a pass? That’s not capitalism, that’s Mervels cronyism.

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