The other day, in the midst of preparing for final exams and presentations, I happened to listen to Marketplace on NPR. The story that Kai Ryssdal opened with really infuriated me, and I knew I had to write a post.
Remember all the way back to that other lifetime that was October 2008? The economic crisis had just come to a head, and everyone was screaming that if something wasn’t done – and Quick! – the entire economy would collapse worse than the Great Depression. Housing prices were falling faster than ACORN’s respectability, while unemployment was rising faster than a large helium balloon without a boy inside. And in the midst of a very close and contentious presidential election!
The result of all this turmoil was the $700 Billion stimulus bill, now more commonly called TARP.
Although there was quite a bit of pork in the bill, the main document was spent outlining how the government would buy “troubled assets” from struggling banks, and issue loans to haul financial institutions over the river of total ruin. From the outset there were screams of how much money the taxpayer would lose in this deal from the fiscal conservatives, and screams of it not being enough help for “Main Street” from the fiscal liberals. This was effectively President Bush’s last big bill in office before President Obama came in with the second $800Billion stimulus bill.
Now fast forward to December 2009, just over a year later. “Only” $454.3 Billion of the allocated $700Billion was spent by the end of October 2009, although the rest is allocated for use in the future. The banks that were “saved” by the government are starting to repay the loans as quickly as they can – they don’t like all the strings that the government attached to the loans. As Kai summed up so well:
The TARP, the bank bailout, was budgeted last fall at $700 billion. A couple of months ago best guesses were taxpayers would lose about $240 billion on the deal. Well this coming Wednesday morning we are going to get a report from the Government Accountability Office that says, in fact, we’re only going to lose about $40 billion. Do a little government accounting of your own, that means the White House just found $200 billion to spend.
Yes – you heard that correctly – the government is only going to LOSE $40,000,000,000 of your (the taxpayers) money, and now is looking for a place to spend the returns on the investments in financial institution repayments. This is money that the banks were supposed to pay back; it was temporary – a last resort. The rate of return was originally estimated at a loss of close to 50%, and now is “only” a 10% loss, since not all the money originally allocated was distributed,
When TARP was conceived Federal Reserve Chairman Ben Bernanke assured the public at the passing of the bill that “[...] the $700 billion allocated by the legislation is not an authorization to spend but rather an authorization to purchase financial assets.” (source: federalreserve.gov archives.) And yet now the money will be used for spending.
Maya MacGuineas at the Committee for a Responsible Federal Budget, sums up one of my issues with this idea:
The problem in Washington is that anytime something comes in better than expected, or a new money source opens up, it gets spent three ways instead of doing what we should be doing with it, which is repaying those funds.
Currently the idea being proposed by Democrats is to divert about half the $200-billion “windfall” into infrastructure projects, tax breaks, and more unemployment benefits, as well as government job creation.
What the government seems to forget is that a loss of $40B is still just that – a LOSS – not windfall profits to spend on something else. And this money that will supposedly go towards helping “main street” came from main street in the first place! Perhaps the best way to help would be to give it back and get the long sticky government fingers out of the involvement.
Also – TARP was scheduled to end on December 31st, 2009; looks like Hank Paulson has extended it for another full year. Rep. Jeb Hensarling (R-Texas) also sums it up quite well: “What was supposed to be an emergency capital
injection to thaw frozen credit markets has morphed into a revolving bailout fund to advance the Democrats; political, social and economic agenda.”
This was my problem with TARP from the beginning: although there were assurances that the money would be paid back with minimal loss to the taxpayers, I just didn’t believe it would happen. Looks like I’ll be making yet another phone call and email to my Senators and Representatives expressing my grave concerns.
image credits: welcome the light, ritholtz, political humor.com
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