TARP misconception

October 18, 2010 by Ignacio Prado 

Federal bailouts did more good than harm

The election season has been heating up. For those of us in the state of Nevada, there has been no ignoring the escalating exchange of ideologies and accusations.

Not only do political opponents have the wrong opinions, but we are even being treated to ads insinuating
that opponents cannot hold opinions properly.

Issues have been polarized and obfuscated, and opponents have seriously damaged one another’s
gravitas. Standard.

Issues that seem to have been elevated past a certain norm, however, are the national debt and the “bailout” programs such as the Troubled Asset Relief Program (TARP).

In this case, we are talking about a catastrophe measure during an unprecedented financial meltdown.

Sept. 11, 2001, brought down the World Trade Center and changed the world forever. Fall quarter 2007
brought Wall Street down and changed the world forever, again.

In the next few years, the housing, car and financial services industries nearly collapsed and needed help.

Americans would not just let that happen. In the same post-9/11 fashion, they demanded a response.

Even through the controversy, there was what could be described as “general bipartisan support” for measures to treat the economic wounds.

The major forms of response were the bank and financial services bailouts, the automobile bailouts and then a bundle of other general measures aimed at sectors such as higher education (anyone involved with
the budgeting process of any major public university is well aware of that fact).

These sweeping measures came at a dear price. Republicans made sure that we were aware this was a $700 billion package.

They fought some of the more extravagant and “pork-barrelish” features of it before it was passed, with some grumbling dissent.

Fast forward to this election season.

The Tea Party has essentially risen on the fumes of these measures.

What was once a spark is now a flame that cannot be ignored in most races.

In our own races in Nevada, the cost of these measures is a major flash point. Even if it is not a strong organization, the Tea Party has undoubtedly been an influence on the agenda.

What was once a bipartisan rescue effort with the reluctant help of Republicans is now a bipartisan issue all newcomers are using against incumbents, and even some Democrats are accusing sitting Republicans of being big spenders.

Congress is at a very low point in approval. In August, Rasmussen Reports stated that 16 percent of Americans consider the performance of Congress good or excellent.

Americans are clearly not pleased that they have born the brunt of saving America at such a high expense that future generations will have to pay.

Except they won’t.

The TARP measures were successful beyond anyone’s estimation. The original estimates for cost were genuine based on what everyone thought during the meltdown.

However, time has proven them too pessimistic.

More than $30 billion was put towards homeowner assistance, which basically means the money went back into the tax pool.

If anything, we have recently learned through scandals that certain lenders may have been illegally ignoring or circumventing good faith efforts by the government by ejecting people from their homes when those people still had options.

The auto industry received one of the major boons of this program.

More than $82 billion were committed to saving the giants. Of that commitment, however, only $27 billion ended up being written off.

The difference was either not needed or repaid.

Perhaps the most galling, which drive the Tea Party, and frankly, many average Americans to fury, are the Wall Street bailouts.

It seems unbelievable that we helped them out. However, they helped us out.

The massive amounts of shares the government bought to bail out these companies had some mixed results.

Some were junk and were a loss. Some turned a profit due to the recovery of these institutions.

Overall, the government invested $250 billion and has so far actualized a $16 billion profit in valuation and sale of shares.

But even then some programs were a wash. The American International Group, Inc. (AIG) bailout is an example of this.

As mentioned above, the automobile bailouts cost money.

The homeowner assistance certainly was designed to be a loss. This does seem like a dangerous precedent.

But there are successful examples from around the world to prove that the precedent is certainly not what the rhetoric suggests.

For example, Germany has had a reconstruction tax averaging above 5 percent of income, since the reunification.

Their status right now: the lowest unemployment in 17 years.

In Nevada, we should certainly perk up at that idea.

In the words of Douglas J. Elliott, a fellow at the Brookings Institution and former JPMorgan Chase managing director, TARP is “the best and most useful federal program that has ever been despised by the public.”

If there is one piece of advice I could give our society, it is to give a “bipartisan boost” to all incumbent candidates.

Instead of causing a heavy yoke of debt, in reality, these measures have probably kept a generation of Americans from being unemployed.

Perhaps more relevant in our case, this program has kept us educated due to some of the higher education measures.

A 16 percent approval rating for our current Congress is not biting the hand that feeds us, it is chomping off the arm.