More Journalists Dignifying “TARP Was a Success” Propaganda

I hope NC readers don’t mind my belaboring the issue of the TARP’s phony success, but every time I see the Administration’s propaganda parroted I feel compelled to weigh in.

The trigger was an effort at a balanced assessment by Annie Lowrey at Slate, to which I have some objections, followed by some shameless and misguided cheerleading by Andrew Sullivan:

But two years ago, I sure didn’t expect the government to make a profit from TARP. And I sure didn’t expect the auto bailouts to become such huge successes.

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.


Any effort to look at the performance of the TARP in isolation is pure three card monte, and accepting that framing plays into the Administration’s hands. You can’t look at its “success” of a program when its results are dependent on other operations, such as continued regulatory forbearance (aka extend and pretend), the Fed’s super low interest rates (a massive tax on savers), the continuing use of Fannie and Freddie to prop up the housing market, the train wreck hitting state and municipal budgets (the collapse in their revenues is a result of devoting fiscal firepower to the banks rather than the real economy; the experience of other severe banking crisis suggests that a short term fall in economic activity was inescapable, but less bank-coddling approaches would have led to a bona fide recovery).

If someone was flattened in a car wreck, taken to a hospital, put on life support, and then subjected to all sorts of operations and medical procedures, how would you judge the result? If the doctor told you, “His broken legs have healed, the internal bleeding has stopped, we are no longer giving him IVs” would you consider any of that germane if he was brain dead and still hospitalized, with no immediate prospect of functioning independently?

The banks’ denials to the contrary, if their second liens and commercial real estate exposures were valued at realistic levels, the four biggest banks would all need major equity injections. They should not have been permitted to pay back the TARP, nor should they be paying dividends or “Mission Accomplished” level bonuses. And if the biggest depositary banks were revealed to be in as bad shape as they really are, do you think Morgan Stanley and Goldman would be unaffected? They might not go into crisis mode, but they would not have smooth sailing either.

But there is a way in which the TARP was a complete success. It was a de facto financial coup. The regulations put the Secretary of the Treasury outside the law. The Fed has run quasi fiscal operations outside normal budgetary processes with hardly a peep from Congress (the Audit the Fed was a helpful effort to increase transparency but still fell well short of dealing with the usurping of Constitutionally mandated approvals). And this isn’t our view; Simon Johnson was early to see what was really at stake in his May 2009 Atlantic article, “The Quiet Coup“.

And we see an continuation of government dominated by financial interests in the passivity of the Obama administration at continued high levels of unemployment, when Reagan went into aggressive action at lower trigger points. Instead, we have bond vigilantes driving policy when the lessons of Latvia, Ireland, and Greece are again proving that austerity only makes debt hangovers worse.

What we need is debt reduction via restructuring and offsetting stimulus, but that means imposing losses on banks. So no matter how you try to cook the books, the political “success” of TARP is an economic disaster for everyone except its immediate beneficiaries, which include writers who have made themselves scribes to the oligarchs.

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  1. ggm

    The big banks were also given tens of billions in tax breaks in an effort to make TARP appear less unprofitable. Legerdemain and lies, through and through.

    I like your analogy involving the friend on life support. Whenever someone tells me the bailouts were a success, I ask if they would also congratulate a doctor for successfully resuscitating parasites while the host/patient was bleeding to death.

    1. nonclassical

      “banks were also given taxbreaks”..exactly. They didn’t “pay back TARP”-they were given taxbreaks to make it APPEAR TARP had been paid back…

  2. Terry Fitzpatrick

    Just in time for the 2012 rollout of obama’s 2012 re-election campaign announced yesterday.

  3. lurker

    This is of course the same Andy Sullivan who described the left as a “fifth column” in the run up to the Iraq War.

    Andy is reliably deferential to power. He also reliably fails to wrap his mind around anything more complicated than than the simplest mathematical operations.

  4. Eric Peterson

    “austerity makes debt hangovers worse” and “what we need is debt reduction via restructuring and offsetting stimulus.” This is more Keynesian nonsense of the highest order. How have we learned nothing from history? Government deficit spending and stimulus in the early 30’s lead to a lengthening of the Great Depression and a drop of the cliff in 1937 (which we are about to experience again here) and the Japanese have been trying these ridiculous bridge to nowhere policies for 20 years fighting deflation and ending up with nothing but 200 % of GDP in debt to show for it. What we need is for the government to stay out of the business of propping up zombie companies and the Fed to stop monkeying with the market interest rate. Then these bubbles wouldn’t occur in the first place and we wouldn’t need your absurd stimulus.

    1. TC

      “Government deficit spending and stimulus in the early 30’s lead to a lengthening of the Great Depression…”

      Oh yeah? And what of it led to capacity to mobilize the nation’s resources that global fascism might be defeated?

    2. steelhead23

      This is nonsense. It is as if to cure regulatory capture, you simply remove the regulator. Thus, if crime is high in your neighborhood, fire the cops and arm yourselves. Fine for you manly men out there, but momma’s gonna have trouble. Libertarians have grown antisocial.

      1. attempter

        “Have grown” antisocial? In ideology, they were always antisocial.

        In practice, they’re the most parasitic of Big Government welfare leeches.

        Hmm, what are a few of the things which cannot exist without aggressive Big Government?

        Property, corporations, adhesion contracts, wealth concentrations, becoming filthy rich in the first place….

    3. Paul Tioxon

      Mr Peterson serves up a thin gruel of lies, tying depression era economic collapse to government intervention and spending stimulus. Since there was absolutely no government interference When Wall St collapsed, causing the Great Depression, a nearly inert private sector just sat and rotted out the body politic from its own failure to spend for investments, wages or other purchasing that created demand and economic activity. The government that is charged with the institutional preservation of our national social order stepped in to do what absolutely no one else had the capacity to do. The depression was NOT prolonged by this Federal action, and it did not all by itself stop and resurrect the rotting corpse of capitalism. WHAT THE GOVERNMENT DID WAS PROVIDE A SAFETY VALVE TO MITIGATE A VIOLENT ARMED REVOLUTION THAT WOULD SEE PEOPLE HANGING FROM TELEPHONE POLES AND STURDY TREE BRANCHES FROM SEA TO SHINING SEA. And not the people Mr Peterson would suspect. For alternatives to the US Government path, please review Imperial Japan, NAZI Germany and Fascist Italy. Banks and industrial corporations did very well in those countries thanks to, among other things the wage suppression tactic of slave labor by the millions, in an unending supply. Of course, the slave labor was not counted in the German miracle of wiping out unemployment.

    4. Dirk van Dijk

      Complete Bullshit, the first term of FDR saw the highest sustained growth of GDP and Industrial Production of any peacetime administration in US history, and only FDR’s third term is higher, and that of course was all about WWII (ok not a lot of data for periods before the Depression though). The he went down the austerity path and things fell apart. You want us to repeat 1937 before we even got the real beenfit of lifting off the bottom.

      1. Eric Peterson

        You can put off 1937 as long as you want by building more bridges that go nowhere with trillions of dollars of uneconomic spending, but it will come at some point whether you like it or not. This idea that government stimulus is anything more than a temporary fiction and distracting us from painful economic realities is absurd. Housing will find a bottom on it’s own, and having the government run up massive deficits (crowding out private investment) ad nauseum “creating jobs” building things that no one would build at a price no one would pay will only make things worse. The trillion dollar deficits and zero interest rates are in year three. When do they stop? When can the stimulus be removed? The Keynesian answer is always the same….not yet. And when things get worse (or at least not better), the answer from the Keynesian is always the same, we didn’t do enough. This is nothing more than a transfer of wealth from the poor to the rich through inflation and ultra low interest rates (banks get the money first and get to drive up the prices of commodities while suckers like us get to just pay up at Whole Foods and the pump) and robbing wealth from savers and giving it to consumers who foolish borrowed too much. Asset bubbles are deflating all around us, and it will be painful (for those of us with large debts), but it will happen whether you like it or not (just ask Japan who has been following this foolhardy remedy for over 20 years with no luck and housing and their stock market both down by 75%).

        1. YankeeFrank

          You are conflating government giving money to banks and huge corps with govt giving money to the people in the form of well paying wages for valuable labor that builds infrastructure and rejuvenates demand. They are not the same. Japan has debt at 200% of GDP because it continues to pump money into its perpetually insolvent banks. Oh, and btw, if we had some of that Japanese “stagnation” over here we would have generally solid infrastructure, extremely low unemployment, universal health care, a healthy educated populace etc. etc. Please stop confusing the issue by conflating the propping up of plutocrats with true and direct fiscal stimulus to the people.

        2. Nathanael

          You are just wrong about 1937. Perhaps what you miss is that the New Deal actually spent money on stuff we needed.

          And lordy, do we need stuff right now. We need a massive amount of solar power plants, lots of wind power plants, geothermal, some hydro, massive weatherization and insulation of houses, high speed rail, electric car charging stations, and on and on. And then again, we need education for kids, we need healthy food for everyone, we need health care for everyone, hell we could use a reformed court system with more justice — useful places to spend money abound.

          As the other commenter said, you are confusing two things: continuing to pour money into useless parasitic middlemen such as banks and insurance companies — BAD, but unfortunately what Japan did, and unfortunately what Bush and Obama have done — versus pouring money into getting *useful* stuff. The fact that we continue to spend money on essentially useless weapons systems and a frankly counterproductive war on drugs only adds to the story.

        3. Anonymous Jones

          You may think you have a great handle on history, but you do not. It is embarrassing. A full grasp of history is way beyond *anyone’s* mental capacity, and is clearly way, way beyond yours, as you have no idea of your own limitations. I don’t have the answers, but the one thing of which I’m pretty certain is that you don’t either.

          No one is proposing bridges to nowhere. Peddle your misdirection and false dichotomies elsewhere. Few people who are stupid enough to believe your inaccurate and completely unpersuasive ‘arguments’ come to a site like this.

    5. darms

      Eric aka dumbass,
      The fallback in the late 30’s was due to deficit cutting measures. While I don’t have a good link right now I’m a regular here and I’ll find one. Dammit.

  5. Renodino

    Sullivan recently signed up to write for the Oligarch’s Queen Bee, Tina Brown.
    Probably doing some front running here to prove Tina made a wise choice.

  6. Sponge Bob Square Pants

    Personally, I do not shy from using the word “sucker” in calling out the likes as are called out here. Your car wreck analogy is brilliant!

    Per “hardly a peep from Congress” … well, knowing you possess an interest in biological sciences, I was wondering if you had come across some research demonstrating that, jellyfish have gained command over the English language?

  7. Steve


    Great stuff. The lasting legacy of TARP will be the vast augmentation of arbitrary, unaccountable State power.

    There are a lot of readers of this website who think that vastly expanded government and redistributive power will solve all of our problems. When the current “saints” no longer govern, we may tremble at the power held by the unwise.

    1. steelhead23

      Steve, Where are the saints? Bush and Paulson sold Congress TARP to keep the financial system functioning. The financial system (such as it is) remains functioning – so TARP clearly defeated that strawman (or is it postponed that strawman?). But what TARP really did was it cemented the concept that some financial institutions are simply too big to fail. Had the FDIC and OCC stepped in and done what should have been done and reconciled the big banks, that myth would have been debunked. The myth survives because of TARP. Both sinners and saints will be paying homage for years to come.

      1. Steve

        I agree with you. I had “saints” in quotation marks for a reason.

        Banks have been failing for hundreds of years and Old Glory is still flying outside my window. The fight against big-bank domination here is as old as this country.

        You and Hugh (above) are right. The Swedish Option was always available. Nobody had the guts or the integrity to use it at the time, myself included. But now that the situation is more stable, Obama could do what is right. He just chooses not to do so.

      2. alex

        “Had the FDIC and OCC stepped in and done what should have been done”

        Not only should have, but as per Bill Black, was legally _required_ to be done by the Prompt Corrective Action law passed in the wake of the S&L meltdown.

  8. YLSP

    Thank you Yves!
    The reason that TARP was supposed to cost so much was because the program authorized the Treasury to remove troubled assets from bank balance sheets.

    Paulson pivoted; and used it to prop up “failing institutions” (those are the words he used about a capital injection plan). I would hope that it doesn’t cost as much, given that the whole plan was ignored.

    Treasury doesn’t even hide this, and never hid it. This is from Page 9 of their 2-year retrospective on TARP: “The TARP was originally proposed as a means for the government to buy mortgage loans, [MBS] securities and certain other assets from banks.  The fact that it was not used for this purpose promptly after passage has led to criticism of the program.”

    Gee; yah think? TARP, the screw deal!

  9. financial matters

    The right balance can be hard to find. And it doesn’t seem uncommon to overshoot from one problem to another..

    From Stiglitz’ Freefall…

    “”It has become a cliche to observe that the Chinese characters for crisis reflect “danger” and “opportunity”. We have seen the danger. The question is, Will we seize the opportunity to restore our sense of balance between the market and the state, between individualism and the community, between man and nature, between means and ends? We now have the opportunity to create a new financial system that will do what human beings need a financial system to do; to create a new economic system that will create meaningful jobs, decent work for all who want it, one in which the divide between the haves and have-nots is narrowing, rather than widening, and, most importantly of all, to create a new society in which each individual is able to fulfill his aspirations and live up to his potential, in which we have created citizens who live up to shared ideals and values, in which we have created a community that treats our planet with the respect that in the long run it will surely demand. These are the opportunities. The real danger now is that we will not seize them.””

    1. nonclassical

      Stiglitz appears to have been taken in by Obama; most Americans believed he was actually going to do “transparency, oversight, accountability”.

  10. jake chase

    Of course TARP was just a misdirection play. The real action was at the FED, which has injected over twenty trillion by some accounts into the banks and primary dealers (and don’t forget GE or of course AIG). Funny how none of that loot has found its way into the real economy but continues fueling hedge fund speculation and banker bonuses on fictional “profits”, so the whole “recovery” is just a Ponzi scheme. Meanwhile, housing remains comatose because extend and pretend keeps prices from falling far enough to make housing affordable for stagnant worker incomes. It would not surprise me to find middle class retirees living on cat food, since the risk free rate of interest is now considerably less than 1%.

    Those nattering about the recovery are wildly slinging bouquets as though their jobs depend upon it. I wouldn’t be surprised if they do.

  11. jim

    Measuring success implies an implicit or explicit objective or standard by which to judge a given set of policy actions. Against the standard of other government “bailouts” (where money went out and never came back), it’s got to be measured a success. Against the standard of pulling the financial system back from the abyss into which it surely seemed to be headed after Lehman filed for Chapter 11, it’s hard to argue that TARP, as a small piece of a much larger package of other extraordinary programs instituted by the Treasury, Fed and the FDIC in the third and fourth quarters of 2008, wasn’t successful.

    Of course, if you don’t believe the whole system was at risk in September of 2008 or you would have preferred to see the reckless liquidity and risk management practices of our major financial institutions punished, regardless of the broader potential social costs that allowing those institutions to collapse might have entailed, then of course you would view TARP and its companion programs a failure. It all depends on your premises.

    To view TARP as a financial coup however is either naive (which as a long time reader of this blog I know you are not) or just sensationalism. In fact, the coup occurred long ago, when in 1913 after the panic of 1907, the Congress established the Fed as lender of last resort with power to commit the balance sheet of the USG to protect member banks against illiquidity in a crisis. And then in 1934, when the Congress set up the FDIC to guaranty deposits of member institutions so as to avoid “runs” that could have similarly destabilizing effects on the system as a whole in a crisis.

    You may not like the “moral hazards” implicit in those Government safety nets for financial institutions but those moral hazards were baked long before the TARP pie came out of the oven in this latest crisis.

    None of which is to say that the country’s largest financial institutions didn’t put the whole shooting match at risk with ridiculous leverage, reckless underwriting and risk management practices. Nor that the regulators and a Congress overcome with de-regulatory zeal don’t share a good deal of the blame for allowing the banks to go out on the high wires while still leaving the safety nets out and under them.

    But when you are in a crisis, the first task is to try to contain the damage and avoid wider consequences. And in that regard, it is hard not to measure TARP and the broader array of programs instituted by the Fed and the FDIC, a success. The financial crisis provoked a severe downturn in economic activity but it would have been alot worse had the Treasury, Fed and FDIC just sat on their hands and let the chips fall where they may.

    And now that the crisis has abated, we have the luxury of perspective to try to fix what went wrong. The fear is that we don’t have the perseverance to do so before our recollections go dim or the lobbyists get the better of the effort. That possible coup is ongoing now, with efforts to de-fund the SEC and the CFTC and to gut the Consumer Financial Protection Agency before it gets up and running.

    So, rather than rail against the journalists for finally figuring out that TARP isn’t going to cost the taxpayers any money (contrary to the left and libertarian narrative of the past two years), rail against a new House of Representatives that seems already to be engaged in tactical forgetting so as to undo the most important limitations imposed by Dodd Frank and unleash the hounds again.

    1. Hugh

      There seems to be a fair amount of revisionist history going on here. The reason that Congress and regulators were overcome with de-regulatory zeal is because they were bought and paid for by Wall Street. You also seem to accept the strawman that our choices were either to do the TARP and the other Fed and Treasury programs, or nothing. Other alternatives, like the Swedish option, were always known and available. They just weren’t used because reform was not what Wall Street wanted.


      There is no “we”. It is Wall Street and the politicians they own who are calling the shots on this and reform is not one of them.

      The same could be said of Dodd-Frank. It was never really about reform. I don’t know what important limitations it puts on anything. It was pap for the rubes. That Wall Street is seeking to defang what never had any fangs simply demonstrates their pathological aversion to reform, even a simulacrum of it.

      1. DownSouth

        A “fair amount of revisionist history”?

        I think jim fancies himself the new Milton Friedman. If Capitalism and Freedom wasn’t sufficiently replete with historical revisionism, then the follow-up effort by him and Anna Schwartz, A Monetary History of the United States, 1867-1960, certainly fit the bill. To hear Friedman and Schwartz tell it, there’s no such thing as a balance sheet problem. All banking problems are liquidity problems, even those that occurred in the wake of 1929 and 1930.

        Schwartz has since had an epiphany. Not even she had the audacity to claim that the banks in 2008 and 2009 didn’t have balance sheet problems.

        So now enter jim.

        Does the dishonesty know no bounds?

        1. nonclassical

          Weimar Republic(cons) will never admit Milton Friedman-“Chicago Boys” documented history…

          and since they own corporate media, neither will media…

    2. steelhead23

      I sure wish Yves would respond to your thoughtful post, but she likely won’t. I somewhat disagree that TARP hasn’t cost the American public. Indeed, the monies lent to the banks may all get repaid, but that is only the tip of the public assets at risk. It is only marginally useful to single out TARP for review of the policy melange TPTB enacted to deal with the bank-caused crisis. Let us recall that Treasury picked up most of AIG, then the FED stepped in and bought virtually all the CDOs AIG had reinsured. The FED also maintained Zirp, accepted junk at its overnight windows, extended those overnight windows into months, offered payments on excess reserves, etc. Hence, the FED ate the bank’s losses, gave them huge bennies, and so the banks have been able to pay off their TARP loans. Meanwhile, commodities and equities have soared while the economy is mired in doldrums. The wages of sin are death, and the sins of the banks (unbelievable risk-taking) is being payed for by the death of the American middle class. And oh yeah, it is the wealth of those very same TBTF banks that is paying the lobbyists seeking to derail Dodd-Frank et alia. So, damn right, I am concerned about the moral hazard the entire myth of TBTF has wrought.

      1. ECON

        Excellent Steelhead your observations. One really does not need to be fully cognizant of all the important undersides to TARP financing and the Fed to believe that what passes for capture of Government by Wall Street is really financial corruption (of mind and spirit too).

      2. jim

        The cost of the near collapse was a severe recession, with significant increases in unemployment. And, as a consequence of those two factors (declining GDP and employment), there was a huge ballooning of the federal government’s fiscal deficit, as so called automatic stabilizers kicked in (unemployment insurance, food stamps and other anti-poverty program spending authorized long before the Obama Administration came into office) that increased spending YOY by $200 billion at the same time that tax revenues declined with the downturn in economic activity by $200 billion, creating an incremental $400 billion of deficit (even before the Obama Stimulus Plan).

        But, and this is the important point, almost all of the $8 trillion of Fed, FDIC and Treasury support for the financial industry (including TARP) has or will be repaid. That’s what the Treasury Department is now saying (or spinning, as Yves would have it.) The expansion of the Fed’s balance sheet with QE1 and QE2 remain outstanding (and those are not trifling sums) but all of the other extraordinary “bailout” programs have either been terminated or been repaid or are on their way to being repaid.

        That fact (that the “bailout” is unlikely to cost the Federal Government anything) is so inconsistent with the “banker bailout” narrative the left and libertarians have been plying the last two years that they remain incredulous even as the fact comes into clearer focus with the passage of time.

        But there’s more: if the Government is actually made whole then perhaps the crisis wasn’t – as Yves and others would have you believe – so much a “balance sheet solvency” crisis, but a classic liquidity crisis resulting from a run and panic, not in the insured deposit system (since that has been protected by government guaranties since the 30s) but in the Shadow Banking System where financial institutions borrowed short so as to invest long on a highly levered basis. A liquidity crisis can look like balance sheet insolvency in the immediate wake of its wreckage, as the fire sale of assets to meet short term debt maturities forces asset prices down, causing further liquidations, that forces prices down further, in a so called adverse feedback loop. But, over the last two years as the short and long term credit markets have come back (even as an enormous number of subprime/alt A mortgages have foreclosed or become delinquent), the RMBS securities and underlying mortgage prices have rallied: one only has to look at how far back the AAA tranches of the 2004, 2005 and 2006 vintage private label RMBS have come in price over the past two years to realize that the severe price dislocations from the fire sales in the 3rd and 4th quarter of 2008 and 1rst and 2nd quarter of 2009 were not representative of “fair value”.

        Which is not to deny that some pretty crappy mortgages were sold and securitized at the top of the housing market or that the housing market was way overbought by 2005, fueled by abundant, cheap credit. Nor is it to deny that a whole lot of pain has been felt since as the deleveraging has ensued. But to hold up folks who bought homes at the top with no money down and got foreclosed upon when they couldn’t meet their mortgage payments as paragons of virtue whom policy should protect while decrying the bailout of the banks who lent them the money seems an odd way to find a moral in this sordid tale of greed and speculation. If frauds were committed, folks should go to jail. But if this was banker greed and individual speculators BOTH preying (directly in the case of the banks and indirectly in the case of the borrowers) on the Government’s safety nets, it is hard to see anyone but the taxpayer as the potential loser in all this.

        And if the taxpayer is going to be made whole for all the banker bailouts, then, well, the tale is a lot more subtle than the black and white morality tale that the mainstream press and their blogger critics have been debating. It goes all the way back to a better understanding of the joint venture between the public and the private sector that banking has always been and re-thinking whether the risks that a trillion dollar sized bank will inevitably take (and the friends it can buy in Congress to allow them to do so) are the kinds of risks the public in this partnership should underwrite or whether banks of that size are too big to control let alone to fail.

        The Swedish solution left Sweden with two really big banks when all four of their banks failed in the early 90s. We made six out of twelve during the Fall of 2008. Perhaps our representative democracy would be better off turning those 6 into 60 to protect itself against undue concentrations of wealth and influence and our economy better off by protecting itself against undue concentrations of risk taking by six highly correlated pools of capital.

        1. Hugh

          Gee, wherever to begin? The banks are still insolvent. They are being allowed to mark their assets to other than market values. MERS, the massive frauds in RMBS CDOs, and in foreclosures is still all out there and has not been resolved. Then there are the worthless HELOCs they are carrying at full value. And there is the trillion dollars plus in dreck that the Fed is holding.

          Also I don’t understand your concept of paying back. Banks could borrow money from the Fed at ZIRP then turn around and buy Treasuries or count it in their reserves and get paid interest on it either way. Or they could use it to blow the bubbles we are seeing in stocks and commodities. Bubble money is only good until the bubble bursts and then the losses will simply be larger than they were before or dumped on ordinary Americans, because that is where your argument really falls apart. Have the bankers paid us back for the housing collapse? For the loss of millions of jobs? For the losses in retirement accounts? For the high federal deficits they have engendered? For the hits to state and local budgets?

          It is like someone deliberating torching a city paying a parking fine and in your view this makes it all even.

          1. jim

            Gee, Hugh, isn’t it all of a piece? The bubble money blew those house values and retirement accounts up for six years, generating mortgage recording taxes and inflated property values to support local property taxes to fund expanding local and state budgets and giving folks what turned out to be false positives about the value of their retirement assets, all against an economy that was running massive current account and fiscal deficits for the entirety of the Bush years, living on borrowed money from abroad. Then the bursting of the bubble brought it all back to earth. Sometimes you believe what you want to believe, but that doesn’t make it so.

            Sure, the banks have enjoyed a very supportive monetary environment the past two years. But private capital has stepped in to replace the government bosth on the debt and equity parts of their capital structure and the government has been able to fashion for itself an exit as a result. If it blows again, because the real economy takes another leg down and the assets on their balance sheets become impaired again, they may need more capital. But the TARP round is over and done.

            I don’t gainsay the damage that was done by the deflating of the massive bubble that was blown. But the real economy is actually showing signs of life again and if the Hill doesn’t wrench defeat from the jaws of victory by defaulting on the Federal debt and blowing spreads wide open again, we might actually have a chance of weaning the economy off cheap money and fiscal stimulus in an orderly fashion as a real recovery takes hold and close this chapter behind us once and for good.

            And when you push as much RMBS out the door the way the banks did in a very short time, you are going to test the capacity of the systems developed to handle the recording of mortgages and their enforcement. Clearly, problems exist. But these are documentation problems, mostly. Money changed hands, that much is certain. Shame on the banks for sloppy paperwork in documenting their investors interests and for failing to tell the courts in which they seek to foreclose the truth about the state of their documents. But again, that does not excuse folks who borrowed more than they could afford or who were just speculating that they could flip the properties before the music stopped from paying what they owe.

            Similarly, HELOCs that are underwater are unsecured loans, like credit card advances. Some are good even if the collateral supporting them is not. Time will tell. But we can’t turn fast and loose lending into an excuse for strategic defaults. Perhaps that is what some who want to turn the MERS scandal into a crisis or predatory lending into an excuse for non payment hope to achieve, but that way madness lies.

          2. Nathanael

            “The bubble money blew those house values and retirement accounts up for six years, generating mortgage recording taxes ”

            Jim, where to start? MERS, perhaps. The banks deliberately evaded the mortgage recording taxes, you know that.

        2. bob

          “near collapse”

          Correction, it was a collapse. The banking system was NOT working.

          What we did was to wait until the house burned down, then we threw a bunch of money onto the smoldering ashes.

        3. nonclassical


          meanwhile the states and American taxpayers can go eat cake..

          perhaps you need to read Yves book very closely…

          then there’s the reality:

          that we’re talking about $600 Trillion in derivatives, 95% owned by 6 U.S. “investment banks”. Meanwhile the entire world economy values around $65 Trillion per year, the U.S.
          economy $6.5 Trillion. It will be a loonnnggg time before
          all that bad paper debt is off books at anywhere near what banks want it to be..and taxpayers will pay for it all….

        4. Nathanael

          (1) The government isn’t even close to being made whole. The AIG CDS bailout alone demonstrates that, even if we ignore all the other ways.

          (2) The major banks remain insolvent. Now that they’ve “paid back” TARP, they’re more insolvent, and on a glide path to Japanese bank status. They are simply being allowed to fake their accounting — in hopes that they will earn enough profits to make up the “hole” later — and this has been extensively documented in the Financial Times for several years now. This is of course what the Japanese banks did, prior to the “lost decade”.

          (3) It’s quite clear this was all done for the purpose of making sure the bank CEOs and other execs could extract as much money as possible as fast as possible.

    3. monday1929

      You seem to have left out the criminality of the banks, an oversight I am sure. They just got a little too frisky, ehh?
      Just need to be reined in a bit, ayy?
      I prefer Jamie Dimon’s more folksy approach to spin than yours.

  12. Hugh

    Important to remember that the TARP was initially defeated by a combination of Republicans and liberal Democrats in the House 205-228 on September 29, 2008. It was thanks in no small measure to pressure from the recently chosen Democratic Presidential nominee, one Barack Obama, that the House passed the Senate version of the TARP 263-171 with a majority of Democrats voting for it 172-63 and a majority of Republicans opposing it 91-108. That is Obama was able to swing 32 Democrats in favor of the TARP while Bush could only get 25 Republicans to flip.

    So I can see why Obama who just announced his reelection campaign is so interested in spinning the TARP now as a success. And yes, Andrew Sullivan is an idiot but you have to see him as just one part of a concerted effort by Obama friendly journalists to prepare the ground for his reelection bid. If you want an even more egregious example, there is the one of the more liberal Kevin Drum who said if he disagreed with Obama on a subject, gosh darn it, he would dump his own view and accept Obama’s because he trusted him so much. How braindead is that?

  13. Dave Cleinman

    It’s ironic that TARP did one other thing. It allowed the recipients to keep up with the bonus packages for their upper echelon staffs.

    It could all have been done differently, in my opinion. Bailouts should have been interest-bearing loans. All monies should have been directed specifically to areas of need. And, since TARP was public money, any use beyond the contracted needs should have been prosecuted. Instead, we bankrolled corporations to the tune of about a trillion dollars, and are watching the dollar die, even so.

    All TARP did was delay the inevitable, and possibly make the end result much worse in the long run.

    Oh yes, and let’s not forget the 4-5 million foreclosures between 2008 and now. I doubt that any homeowner who has lost their home would call TARP a success, in any way shape or form.

  14. Z

    The fed and the federal government … that’s redundant in some ways … basically gave the banks/wall street the money, via shell games, to repay tarp.


  15. Cudgel Carrot

    austerity only makes debt hangovers worse.

    What we need is debt reduction via restructuring

    With the promise of ever more debt restructure, debtors the World over would borrow to the hilt. What bonanza of fuel to the fire of debt cycle that has literally paralyzed the underclass for centuries. What is the rational for “stimulus”? Stimulus is an incentive to the consumer, an artificial incentive to shop-till-drop. Theoretically of course. In practice “stimulus” is a bit of inflation to cancel the disinflation that might otherwise postpone a consumer’s purchase, a consumer who thinks that prices may continue to deflate in absence of stimulus. In practice stimulus merely postpones the realization of real-price-bottom-finding with attendant prolongation of unemployment and its multiplier effect.

    The true remedy for unexpected consumer disinterest is to force all price-wage-spirals downward to provide a quick bottoming process. The economy then rebounds by its own natural vigor. Corporate governance should shoot for wage cuts, bonus cancellations, and dramatic price cuts on all wholesale and retail products. Our political rulers should slash prices on all taxes, slash all taxes to the bone. Rulers should cut wages of public workers but continue to hire more help and postpone separations. All slots should be filled, especially low paying slots. Instant attention to these crucial remedies provides a sudden bottoming of all prices and easily aborts the hope of yet lower prices. The consumer capitulates, enters the gates of Dante’s Hell thus gives up hope forever of any further price drops at Better Buy Appliances and Cost Cut Big Box Stash. She capitulates then resumes her shop-till-drop in attempt to buy everything before prices rise.

    Disaster averted

  16. mmckinl


    The whole truth and nothing but the truth …


    You are a light in a sea of darkness …Thank you, thank you, thank you …


  17. kievite

    I am not sure that TBTF banks and government are separate independent structures as implied in many posts in this discussion. And what is called “capture” might be a more complex scheme of interdependence.

    The question is: Can can discuss the relationship of TBTF and government using implicit assumption that those two are separate entities as if, say, JP Morgan is the some regular private company like, say, Adobe ?

    I would say no. It looks more like TBTF not only control the government, but are at the same time a hidden arm of the government (kind of financial death squads ?) and the international role of TBTF is so vital and important that the US government just can’t afford to address the misbehaviour in the domestic market without huge “collateral damage”. That automatically excludes any attempt to deal with the crisis like Sweden.

    I think the government views TBTF much like in famous FDR quip about Nicaragua’s dictator, “Somoza may be a son of a bitch, but he’s our son of a bitch.”

    In this sense famous slogan of 2008 demonstrations against Wall Street fat cats “jump f**kers” despite its obvious relevance and elegance is addressed to just one head of two headed beast.

  18. Nathanael

    “Instead, we have bond vigilantes driving policy when”

    Correction, Yves: *invisible* bond vigilantes, as Krugman calls them. There are no actual bond vigilantes; actual bond traders are happily buying Treasuries at negative real interest rates, as we all know.

  19. Nathanael

    Simon Johnson wrote:


    This is not so advanced or unusual as all that.

    The most advanced form of this was created by medieval (and some pre-medieval) monarchs, with the idea that what was good for your liege-lord was good for you. They kept this up for well over 1200 years continuously, despite the fact that the lords often treated their underlings, quite simply, as slaves. The Christian Church was used as a tool for this mind control.

    Compared to that the current financiers are pikers.

  20. marc fleury


    NO, I DO mind… in find your constant “belaboring” just tiresome and it discredits you… it is why I have stopped reading NC months ago very frankly…

  21. Frank

    TARP, the acronym for Troubled Asset Relief Program was suppose to address the mortgages within the insured bundled mortgage credit swaps designed to fail (designed so to collect the insurance on the failed swap when it did fail) although most did not know that the swaps were designed to fail at the time. What started out as “Trouble Assets” became “Toxic Assets” which morphed into “Damned Toxic Assets” (DTA’s) that just would not go away; hence the damned toxicity. Most of TARP was suppose to address the assets directly by addressing the mortgages within the swaps; but, that path was never really started. Instead, Henry Paulson began purchasing the DTA’s (still “trouble assets” at this time) from the banks because the credit swaps through a legally fraudulent rating system were located in banking reserves that received waivers in 2001 to be held as hedge funds rather as than liquid capital (cash) as the law required. The debt instrument grade was suppose to be AA or better; however, the mortgage credit sways rated as junk individually became AA or better when grouped due to a group rating being equal to the highest debt instrument within the group rather than a weighted average of the group. Henry Paulson soon found out that there was not enough TARP money to buy up the DTA’s; thus, convinced Fannie Mae, Freddie Mac, and various Public pension funds to buy up these worthless swaps outside of TARP. As of yet, no money had went to directly addressing the mortgages within the credit swaps as TARP was originally targeted to do.

    In addition, the lending institutions had been lending at a ratio of 37:1 ($37 lent to every $1 in the now hedge fund reserve) while the Federal Reserve was creating currency at 9:1. When the DTA’s began to fail as designed, the banks could not be liquidated via the RTC because the reserve as hedge funds did not have the capital required for controlled resolution because they were not liquid and the assets had deteriorated to the point of worthlessness leaving the only course of the Federal Reserve to create new currency to the tune of $23 trillion.

    It was only after the infusion of $23 trillion and the buy up of DTA’s that the banks could finally address the mortgages themselves; but, only did so in an halfhearted manner. Most of the newly infused funds went to consolidation of the banking sector and what little that did go to address the mortgage issue was done so without lowering rates, with high refinance fees, and no lengthening of the term of the mortgage, all of which is needed to lessen the debt burden resulted in refinance payments equal to or greater than before the refinance. As a result, there was a high recidivism rate of failures (around 60% second defaults) which the large banks used as an argument against continued refinancing. Counter to the large bank assertions, small banks who did make the necessary adjustments reduced the recidivism rate to 19%; a figure confirmed by a study. Rather than follow the path provided by the study, the small banks were allowed to be gobbled by the large banks and refinancing remained as a voluntary function.

    Where we are today is that the DTA’s still reside within the Federal Reserve, Fannie Mae, Freddie Mac, and public pension funds (which is one of the reasons for the public pension fund shortfall). Since TARP was suppose to address the “Troubled Assets” (now “Damned Toxic Assets”) and the assets still exist in their troubling toxic state, TARP cannot be considered a success by any measure. The money paid back to TARP did not come from DTA resolution; but, from the $23 trillion infused to compensate for the currency shortage to cover credit short fall. The banks are not whole by any means, the reserve still exists as hedge funds, the banks are not lending; but, investing, and the DTA’s sit like mines waiting to go off which all means that TARP was a failure and not a success by any measure.

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