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The TARP Slate Pitches Don’t Work

Here we go again. It seems that every couple weeks, somebody else writes a counter-intuitive, made-for-Slate story about how TARP is actually a great success coming in under cost, and how it might actually turn a profit. Jackie Calmes does the honors today.

Even as voters rage and candidates put up ads against government bailouts, the reviled mother of them all — the $700 billion lifeline to banks, insurance and auto companies — will expire after Sunday at a fraction of that cost, and could conceivably earn taxpayers a profit.

A final accounting of the government’s full range of interventions in the economy, including the bailouts of the mortgage finance giants Fannie Mae and Freddie Mac, is years off and will most likely remain controversial and potentially costly.

But the once-unthinkable possibility that the $700 billion Troubled Asset Relief Program could end up costing far less, or even nothing, became more likely on Thursday with the news that the government had negotiated a plan with the American International Group to begin repaying taxpayers.

The same Very Serious People despaired that politicians had to run down TARP, so their brilliance in its execution would not be recognized.

Um, this is all crap. As I said in short form yesterday, “Glad to hear that 2% of total emergency fund layout for Wall St banks will be relatively cheap if u don’t count Fannie & Freddie.” The longer version of the same argument is that TARP represents almost none of the actual assets provided to banks during the financial meltdown, which number close to $3.7 trillion, by the latest estimate. Thanks to obscenely low emergency lending facilities, banks were handed money that they could loan back to the government at a yield basically made up out of thin air. And their most toxic assets were sent over to a government-backed mortgage enterprises, which have unlimited bailout authority that isn’t being calculated in these TARP stories. Finally, the financial “success” of TARP is predicated on the Treasury Department not spending $50 billion dollars that was supposed to go to homeowners. So to the elites, “success” equals doing nothing for borrowers facing foreclosure.

But I’ll let someone with somewhat more authority than I continue this argument:

“The rescue of AIG continues to have a poisonous effect on the marketplace,” one critic said recently. “By providing a complete rescue that called for no shared sacrifice on the part of AIG and its creditors, the government fundamentally changed the rules of the game on Wall Street. As long as the biggest companies in America believe that you and I will bail them out, the worst effects of the AIG rescue will linger.”

The critic was not a Republican politician or some conservative think tank. It was Elizabeth Warren, President Barack Obama’s choice to set up the new agency that will protect consumers from financial system abuses, and her blunt assessment is shared to some extent by critics on the left and the right. A separate report by TARP inspector general Neil Barofsky raises similar questions, pointing out that TARP is only a small part of the financial rescue, and that the government’s total debts for that effort have actually been growing sharply.

Even the AIG deal, which we’re told “repays the taxpayers” and saves the government money, throws more risk on the taxpayer and is based on a host of conditional actions.

Elites really have to stop playing this game about TARP. I know they desperately want to get off the hook for protecting the banks at all costs, but I’m sorry, they can’t. They can talk about its necessity. They can talk about how it saved the financial system. They cannot say that it was a success, that it cost next to nothing, or that it was properly managed. They cannot, in fact, say it “saved” anything, given 9.6% unemployment and millions of foreclosures. The cost of the recession for some reason never gets calculated into TARP. And the opportunity cost of not applying meaningful conditions onto the banks in exchange for the emergency help will have after-effects far into the future.

TARP will not have the ability to make new loans or recycle any of its uncommitted funds after Sunday. I wish that were so for the rest of the bailout.

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David Dayen

David Dayen