The Bailout

Would LOVE to read responses by the major supporters of the bailout. And yes, I realize this all started with the W admin...but the O admin didn't curtail.

Love our politicians.

 

Matt Taibbi is my hero.

 

Two comments, only having skimmed the article so far:

1. The whole premise of the article is wrong. The first line is: [ii]
The federal rescue of Wall Street didn’t fix the economy...[/i]

The bailout wasn't supposed to *fix* the economy. It was to prevent a total collapse of the economy. That's it. And it did exactly that.

2. He repeated ridiculous claims such as Even worse, the $700 billion in TARP loans ended up being dwarfed by more than $7.7 trillion in secret emergency lending that the Fed awarded to Wall Street. It's complete garbage and has been debunked multiple times. At best, it's taken completely out of context and doesn't remotely mean what he suggests. At worst, it's an outright lie. I'm pretty sure he knows better than that, so I don't know what his purpose is repeating that nonsense.

Much of the article is either misleading or extrapolates a lot of things unrelated to the bailout and then blames the bailout for that. The bottom line to me is very simple: the economy was on the verge of complete failure. You either fix the immediate problem or it's all over. They fixed the immediate problem, and they did so at $0 cost to taxpayers. Could they have done it better? Certainly. Did they regulate and change the way banks operate later in 2010? Yes. Could they have done that better/differently? Absolutely. Is that a failure of the bailout itself? No.

It's like saying Obamacare didn't fix every single problem with the healthcare system, and therefore it's terrible.

 

Explain zero cost to taxpayers. Many banks paid back the bailout loans with other govt loans (taxpayer). Further, we allow the banks to do the same things they did to cause this to happen in the first place

Iceland seemed to make it out just fine by doing the right thing (IMHO)

Edit: they don't regulate derivatives which is what the problem was and continues to be. How is that not failure? Also, you start by saying you only skimmed it then later talk about "much of the article". Confused.

We can agree to disagree on the bailout but yu should read the whole article since you have always been a consistent supporter of too big to fail

 

I have no idea what you're referring to here. What banks have outstanding government loans? Most of the banks took out additional equity stakes in the private marketplace to pay back their loans.

First, we don't actually do that - FinReg changed a lot of that. You can argue more needs to be done, certainly. But again, that wasn't the purpose of the bailout, so blaming it for not regulating the banks is silly. If you're having a heart attack, step one is to stop the attack (TARP). Step two is to fix the diet (FinReg). Fixing the diet is pointless if the patient is dead.

Iceland's economy and problems were not the same as the US. And they got bailed out by Europe and the IMF. Then they threw a fit and didn't want to pay it back (not sure what happened there). And their economy is still a wreck. The government just bailed out their biggest mortgage lender last month. They are not fine by any stretch of the imagination.

 

Again, TARP wasn't designed to regulate derivatives. You could argue that's a failure of FinReg, but that's unrelated to the bailout. Obamacare doesn't regulate derviatives either. Nor does the DADT repeal. Are those failures?

Yes, I skimmed the whole article. Therefore, I know what much of the article talks about.

Can you point to anywhere that I have supported the idea of too big to fail?

 

And three rounds of quantitative easing later, who cares?

 

Read farther up..

Well then they are wrong. What we faced was a severe recession that lasted about a year and then a very slow and weak recovery. It was nothing like a collapse of an economy or a great depression. If you don't understand the difference, I don't know what to tell you.

 

Taibbi always blames the bankers for acting in their own self interest, when it was the politicians we voted for that bailed them out (as if banks are the only entity asking for a government handout).

When you subsidize risk taking (bailouts, guaranteed loans, subsidies), people engage in more of it. Who knew?

 

I'm not going to lie, but the whole point of the bailout was to restore confidence in the banking sector, which had been destroyed by the collapse of Lehman and buyout of Bear Sterns. There were most definitely coverups, and unfortunately that was a necessary move on the government at the time to prevent a massive credit freeze. To be honest nothing in the article is that new (the fact that Morgan Stanley was days from collapse and Goldman was going to be next was already in Sorkin's too Big to Fail). The author acts as if by allowing all the banks to fail, nothing major would have happened to the rest of the economy.

Now, I absolutely agree that the implicit guarantee forged by the bailout (that the government will be there to support the bank ad infinitum) is terrible. Horrible. There must be banking reform. Too big to fail cannot happen again. The government got the bailout mostly right, but the reformation of regulation afterwards is in shambles.

 

It's insincere to say the point of the bailout wasn't this or that. The bailout was allowed under certain conditions - those conditions were not necessarily aimed at avoiding collapse, rather they were aimed at avoiding a repeat. Those conditions were insufficient and weren't met anyway, and a system for continuous bailing out has been established whereby taxpayer money can unconditionally be loaned to institutions with interest even in the event that they actively decide to become systemically important (or more systemically important).

The bailout funds, further, were not given to the target market. They were supposed to be given to the most healthy and viable banks. The targets were ultimately selected for their size - which is a different approach to avoiding collapse than the approach agreed upon.

The truth is allowing a collapse was the right thing to do but Americans, like all humans, were not willing to allow the right thing to happen because it would result in a significant reduction in their standard of living as a result of being held hostage by these systemically important financial institutions. These SIFI's are not part of the patient as Major insinuates, they are the cancer. The bailout was supposed to be the defibrillator treatment given to the dying patient while congress was to stipulate the post-defibrillator behavior of the patient which would justify its costs - be they permanent, temporary, tangible, intangible, immediate, or potential. Basically the patient survived and the cancer was left to go for a sequel.

Blame congress. Corporations and corporate influenced politicians will pull teeth to maximize profit, it's your congress' job to ensure that they are not trampling all over you. Unfortunately, congressmen will not have anyone to go to dinner with if they don't help these guys.

 

I'm on board for more banking reform. I want those ****ers dead. Their subsidiaries dead. I want their buildings burnt to the ground. I wanna go there in the middle of the night and I wanna piss on its ashes.

This entire saga has left a bad taste in everyone's mouth. I'm in the crowd that still thinks TARP was totally necessary. It was a systemic failure and a seizure in the repo market, the "shadow banking system", that caused swift panics across the entire financial system. If enough people can't trust what the other bank has, then that bank will shrivel up and die.

It was pretty dicey back then. The middle class should remember it too well. IIRC one account said they lost 3 trillion in wealth, and the median wage is like '06 levels or something.

As for the taking in trash-for-cash, I believe one of the fears was that the banks would cherrypick their riskiest low grade assets and pawn it off to us. Of course, with a recovery it'd be a great hedge-fund-like investment since its performance tied directly with the economy and the public's taste for being a deadbeat on their non-recourse loans. It wasn't a great deal at the time, either. HAMF had been a big turd for different reasons....Not finding enough "qualified people". With pressure to find it, comes pressure to relax standards to deadbeats.

But who would've thought on the cusp of disaster to promote the outrageous, such as a Republican admin flaunting around moral hazard, aka handouts to beggars, that the end result was EVEN LARGER BANKS? fml...I still don't want to know what the Great Depression's like, though.

So the implicit government guarantee is like a patch to a creaky damn that will engulf us all. It's much like how the FDIC serves to remove consumer panics across troubled banks...except for one thing (or many)...we don't have a regulatory system for the repo market. Nor do we have a big enough piggy bank (as much as Helicopter Ben would try to claim) to cover a 100 trillion dollar system with hundred million dollar transactions that come and go by the day. The clearinghouses to settle bankruptcies then were woefully inept for our black box institutions. They might claim to know better than they did 4 years ago, but who really believes a *** **** word they're saying. Without government guarantees to grease the wheel, you'll have more Dick Fulds who think they can perform some GOP-like hostage negotiation by stringing up the nation in the sociopathic horribly managed interests of his bank.

**** those ********.

Oh yeah...as if Congress is any better. Every year they w**** out to lobbyists who water down regulation and pass amendments on current laws, as if the existing law isn't leaky enough. It's disgustingly worse to realize how corrupt both parties are for their money. For one Bernie Sanders, you get Dodds, Liebermans, Schumers, etc in return.

And before some idiot freeper cherrypick the line above and quote it in some vain attempt to make Democrats/government/regulation look bad (baby out of the bathwater idiocy), that process happens before some anonymous Republican knob slobberer (closeted?) puts a hold on it because he wants to grease his Alabama pig farm and it's his turn to block the socialistic reforms. You're a different kind of disgusting. You don't have the ability to realize it.

We're totally boned.

 

Invisible Fan, here's an article that may interest you, regarding a Bloomberg View writer's opinion on what to do with the banks:

http://www.bloomberg.com/news/2013-01-06/breaking-up-banks-is-easy-when-they-aren-t-failing.html

One thing from the article I don't like is this:

Japan actually requires banks to hold government debt, which most definitely eases pressure on those bonds from defaulting (how can yields rise when banks are forced to buy them?).

 

I agree with Mathloom, TARP occured in an uncertain time period. It was certainly wise that the government use GM as a patriotic shield for its actions, and that it drag all banks into the process so as to seem impartial (by not singling out any particular bank). Uncertainty creates instability which leads to fear. And of course, fear leads to anger; anger leads to hate; hate leads to suffering.

The Fed is no longer the lender-of-last-resort it was intended. That is no fault of anyone single individual - it has been given numerous mandates since 1913 from congress and the president and the like. The Fed is now the buyer-of-last-resort, creating the secondary market demand. It can reform the banking industry by becoming a lender, by using the discount window, but it instead chooses to use open market operations.

 

Thanks for the article. It seems very strong proof against the simple claims that TARP was an unmitigated sucess that cost Americans nothing since the big banks have paid their TARP mney, though it was probably less than 10% of the total bailouts actually received.

 

We don't agree very often, but this post of yours makes a ton of sense to me.

As someone always learning, always skeptical, I think this piece from Taibbi is weak sauce, preaching to a very small choir. I'm as skeptical of the financial sector as any evidence-obsessed person I know, but his rhetoric here made him come off like a far leftie bent more to his narrative than fact.

1. The main point is what he expected from TARP, versus what the claims for TARP were. I do think he rightly points out that goalposts were moved (thought quoting Inhofe's outrage as a good example of anything was pretty ridiculous. Guy is the nuttiest public servant in the country), but everything was moving at the time.

But his column completely conflates, as Major says, financial reform with TARP. It's like wanting your NBA lottery pick to fix your salary cap problems. "You drafted Sam Bowie, and look at our current budget mess -- liars!" Huh?

And rimrocker, when you say the economy collapsed for everyone but bankers, that is just totally and completely false. I've studied a lot of financial collapses (long story), and we just didn't. Anecdotally, most people I know kept their jobs and kept paying their bills, even kept most of their kids in school, etc. It's a huge Taibbi-like exaggeration for you to say the economy collapsed four years ago for everyone but bankers.

2. Someone brought up Iceland. Interesting iceland history aside (over-educating a small populace to move wholesale from fishing to banking), we have to quit bringing up other countries. Seriously.

The USA is Lebron James x 10 when it comes to the global economy in terms of being able to control the game right now. yes, we may be balding, and there are some very good young players getting better, but everytime a Greece or an Iceland get brought up, it's like comparing Lebron to some guy at the end of the bench. "You see how quickly that guy was cut? Well, that could happen to Lebron if he doesn't practice his free throws enough!" Again, huh?

 

Except that it wasn't. You guys are acting exactly like the skewed polls people here. You don't understand how the bailout worked and want to believe your own version, so you make up your own facts and repeat them as truth.