Rants & Reasons

It is a matter of enduring befuddlement why TARP, the legislation that rescued the banks and other financial institutions, remains unpopular.

Although it is appropriate to question the fairness of a program that rescued wealthy bankers and not homeowners, nevertheless the TARP programs were largely successful in accomplishing their task without very little costs to taxpayers.

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.

Two years ago, many assumed that the hundreds of millions of dollars authorized to be spent to rescue Wall St. would disappear. But now it appears likely that the whole program will cost nothing and the public may actually make money on it.

Of course, we almost certainly won’t hear anyone from the administration boasting about these encouraging results, because public revulsion for TARP is unrivaled in our discourse. Indeed, the word “bailout” has managed to become synonymous with “evil,” so much so that nearly every policy debate involves participants trying to figure out a way to characterize the other side’s position as a “bailout” to someone.

Brian A. Bethune, the chief financial economist in the United States for IHS/Global Insight, called the program over all “a tremendous success.” Another industry insider said that TARP “is the best federal program of any real size to be despised by the public like this.”

It is estimated that letting the banks fail would have increased unemployment to at least 16% if not more.

As Matt Yglesias wrote:

Do you think letting the banks fail would have had zero disruptive impact on the economy? None whatsoever? What other programs can you name that garnered support from Nancy Pelosi and George W Bush, helped people millions of people, and had a negative cost to the government? And yet people think it’s horrible, in part because the public sphere has utterly failed to defend it.

That’s a problem, in part because the early days of TARP were a huge success for the public sphere…. It became a lost opportunity for ideological instruction. Instead it’s become a moment of anti-instruction, which people think has demonstrated the lesson that the government consists of nothing but corrupt giveaways. It makes me sad. When it was first proposed, I didn’t understand this issue correctly. But in the ensuing two years, I’ve learned more about it and improved my understanding. The public as a whole, however, as just gotten itself more confused.

It doesn’t take much to get the public confused these days.