The only real remedy for the long-term (and other) unemployed is to have the economy grow fast, as it did after the severe recession in 1982 when unemployment peaked in December of that year at 10.8%, and then fell rather rapidly. There is no magic bullet to accomplish this, but I do believe it would help a lot if the leaders in Washington did not try to radically transform various aspects of the economy while we are recovering from a serious recession, and thereby magnify the high degree of uncertainty that is typically caused by a recession. Instead, they should be concentrating on fighting the recession, and stimulating long-term economic growth.
Me: During the 1980s, the economy notched 19 quarters of 3.5 percent GDP growth or better. In the 1990s, the economy also notched 19 quarters of 3.5 percent growth or better. So far this decade before the recession? Just eight. Or look at the number of quarters of “hypergrowth”—5 percent or better. (This was JFK’s GDP goal in the 1960s, by the way.) There were 12 in the ’80s, eight in the ’90s. So far this decade? Just a single quarter, the third quarter of 2003.
1) The key to the consumer finance piece is how much influence regulators have in rule creation. Giving some final veto power to the systemic risk council with a two-third vote is a joke. Would never happen.
2) Does the bill end TBTF? Only if you believe regulators would actually wind down a big firm — or multiple firms. This is why some want to make banks smaller preemptively.
3) Do Democrats even want a bill? Senate Banking Chairman Chris Dodd does, though some Ds would love to use a stalemate as a way of portraying Rs as pro-Wall Street and campaign on it for the November midterms.
4) And what about Fannie & Freddie, housing policy, Fed policy — all keys aspects of true reform which the Dodd bill and the whole “financial reform” process ignore.
This HuffPo piece backs up my analysis of how liberal activists are starting to drive the financial reform agenda:
“To be honest, a lot of us were surprised,” said one consumer advocate closely involved in financial reform efforts. “It seemed like a deal of some sort was imminent and on track.”
The advocate noted that Dodd’s decision was likely influenced by the outcry from progressives and other pro-reform groups who argued that Dodd, a Connecticut Democrat not seeking reelection this year, was giving Republicans and Wall Street-friendly Democrats too much sway over the legislation. Dodd’s original reform proposal in November had called for a strong, independent consumer-focused agency to protect borrowers from predatory lenders.
“At the end of the day, though, there is only so much that reform advocates were willing to give on this,” the advocate said. “And because of the context — what the banks did to the economy and the bailouts — reformers have a lot of high ground right now. Democrats just don’t benefit from teaming up with the banks and losing the interest groups.”
The rap on Mitt Romney is that he is the protean presidential candidate. Always shifting, always morphing, ever eager to please in relentless pursuit of the Oval Office. If he was a contestant onAmerican Idol, the judges would surely knock him for “not knowing what kind of artist he is.” One week a crooner, the next a rocker. One campaign a moderate, the next a culture warrior.
Well, that’s the rap, anyway. Residue of the 2008 campaign. But in his new book, No Apology: The Case for American Greatness, it is the Omega Romney we see, the ultimate distillation. Like a wave function collapse in quantum mechanics where many possibilities become one reality — and that reality doesn’t seem so eager to please. Not at all.
So who is Mitt Romney, at least as revealed in print? Well, the slight 2012 favorite for the Republican presidential nomination is neither in style nor substance a natural Tea Party man. Golly, no. (On the book tour, he has already spoken out against the “temptations of populism.”)
Certainly a conservative. But government, for Romney, is not always and everywhere a problem. Sometimes it can be part of the the solution, as he frequently highlights inNo Apology. The book is certainly no closing argument to those on the right who suspect the Bain Capital co-founder and former Massachusetts governor is a moderate, Wall Street elitist. Or, even worse in the eyes of many on the right, the American version of Tory leader David Cameron. Certainly Sarah Palin would never write “TARP,” Climate Change,” and “Investment Spending” on her palm. But those are major policy points inNo Apology:
1) The widespread view among party activists is that the U.S. government should have let more banks fail in the fall of 2008. To them, the $700 billion bailout was just short of a socialist plot to nationalize the financial system. In the book, Romney does criticize Treasury Secretary Timothy Geithner’s management of the Troubled Asset Relief Program, claiming it has been turned into a slush fund for the White House agenda. But Romney supported the bailout in 2008, and isn’t flip-flopping now. He writes that TARP “prevented a systemic collapse of the nation’s financial system.” (This is certainly the economic consensus, even among center-right economists.) His potential GOP rivals — keeping in mind Romney hasn’t officially declared he’ll be running — will have a different perspective. The governor of Minnesota, Tim Pawlenty, for one, says the financial crisis was overblown, while Sarah Palin, the former vice presidential candidate, says Republicans know bailouts “aren’t the answer.”
2) Romney doesn’t sign on to the belief of many conservatives that man-made climate change is the Hoax of the Century. He said this in the 2008 campaign, as well. But it would be easy to change positions in light of the explosive revelations of those climate scientist emails and shoddy United Nations research. But Romney is sticking. As he puts it in the book: “I believe that climate change is occurring — the reduction in the size of global ice caps is hard to ignore. I also believe that human activity is a contributing factor. … Scientists are nearly unanimous in laying the blame for rising temperatures on greenhouse gas emissions.”
Of course, this doesn’t mean Romney is a cap-and-trader. Like Danish economist Bjorn Lomborg, he believes in remediation and mitigation efforts that make economic sense, not trillion dollar programs to reduce carbon emissions. From that perspective, Romney suggests he would be willing to entertain the notion of a carbon tax whose revenues would be used to offset payroll taxes. This is a favorite idea of many economists, include Harvard’s Gregory Mankiw, a Romney adviser and chairman of President George W. Bush’s Council of Economic Advisers.
3) Romney spends almost a full chapter of the book in a lively and extremely important discussion of the role of productivity and innovation in the U.S economy. And while he eventually makes his case for a lower tax rates on company profits and capital gains, he first advocates more government funding for basic science research, particularly in engineering and the physical sciences.
This is not to say that nothing in the Romney agenda syncs with the Tea Party zeitgeist. Much does, particularly on the budget deficit.
1) He lays out a compelling case for treating federal government finances like a corporate balance sheet where long-term liabilities are recognized.
2) He recognizes the huge cost of public employee unions bleeding state treasuries (and hamstringing education reform).
3) He seems fond of a plan to cut the growth in Social Security benefits for higher-income people by linking benefits to inflation rather than wages.
4) As for Medicare, he believes — as does the Obama administration — that the program must move away from a fee-for-service model. Unlike the Obama administration, Romney also seems to favor eventually giving retirees “credits” to buy their own basic health insurance, with the wealthier paying more out of their own pockets. He then moves onto a spirited defense of RomneyCare in Massachusetts, calling it imperfect but a big improvement over the status quo — and nothing, nothing like ObamaCare. Nothing. Expect to hear that a lot.
And supporting seemingly every Romney policy proposal is an insightful McKinsey study or piece of cogent analysis by noted Harvard economist and competitiveness expert Michael Porter. Clearly Romney’s not a guy who would govern or lead America according to his gut. But that is not who Romney is. He was an investor, not a day trader, after all. Deep, quantitative analysis is what private equity guys and management consultants do.
Whether Republicans want a modernizing, non-ideological Mr. Fix-it who will go where the data take him is another issue. Right now, maybe not. He’s a bit too cool, a bit too technocratic for a party base in the thrall of populist Tea Party-ism. But in 2012, after possibly four years of sluggish, New Normal economic growth, they might.
So it looks like financial reform is going to be Dodd-Dodd rather than Dodd-Corker. The consumer finance regulator is like the new public option, a real deal killer. Also not helping is the wider, harsher version of the Volcker Rule that a group of Dems have proposed. I call it the Goldman Sachs Rule since it is targeted at the supposed conflicts of interest GS has. Throwing GS into the mix further politicizes the process and makes compromise tougher. A real poison pill. But that might be the idea all along. Push a weak, Democrat-only bill vulnerable to a host of anti-bank amendments on the floor of the Senate. Then force Republicans to vote against them with the midterm elections looming. With the economy weak and healthcare unpopular, financial populist may be the only card Dems have to play.
Washington is obsessed with optics and messaging. Indeed, U.S. proponents of limiting carbon emissions hope rebranding their “cap-and-trade” proposal as “pollution reduction” will boost the flagging proposal on Capitol Hill. But the real problem is the product, not the packaging. There are far more politically feasible and economically effective ways of dealing with climate change.
1) As it is, the Obama administration and Capitol Hill Democrats are late to the name-change game. Republicans have already effectively rebranded “cap-and-trade” as “cap-and-tax.” And as much as Washington insiders argue that America is woefully undertaxed, the American public heartily disagrees. Higher taxes are still political poison. Especially ones that hit the broad middle class. And especially during a time of historically high unemployment. Americans aren’t stupid. The whole point of a cap-and-trade plan is to eventually make carbon more expensivee. And that “cost” or “tax” or “pollution reduction” will eventually come out of their pockets.
2) Whatever you call it, an overarching, national cap on carbon emissions is going nowhere in the Senate after passing narrowily in the House. (The recent scientific clash over climate change data hasn’t helped its prospects in the upper chamber.) A possible Plan B is a gradual, sector-by-sector approach to cap-and-trade starting first with electric utilities and eventually expanding to various manufacturing sectors over the decade.
3) But that misses the point. The core political problem here is not how carbon is priced or what the method is called, but rather what is done with the revenue. The original Obama plan was to take some of the money from auctioning carbon permits and devote it to clean energy research. The rest would, temporarily, pay for middle-class tax cuts. But the suspicion has lingered that the money would eventually be funneled toward healthcare reform funding.
4) For the public to accept a rising carbon price, the money must be permanently returned to the public. Gaining momentum is a bipartisan plan where 100 percent of carbon permits are auctioned with 75 percent of the revenue returned as “dividends” and 25 percent invested in energy research. And in his new book, 2012 Republican presidential frontrunner Mitt Romney echoes an Al Gore idea of a carbon tax whose revenues are used to offset individual payroll taxes. Indeed, there are indications that key anti-tax crusaders would be willing to accept a carbon tax plan if the potential revenue was fully refunded in some fashion.
So forget the rebranding. Time to launch a new product.
They won’t, of course. Kind of extreme. But Cato’s Richard Rahn makes an interesting intellectual case:
Despite all of this intellectual brainpower and experience within the Obama economic team, Obamanomics has so far been defined as a series of seemingly ad hoc decisions based on neither economic theory nor philosophy. … Though the Obama administration adopted traditional Keynesian “stimulus” deficit spending during the recession, even the Keynesians thought deficits should only be run at the bottom of the business cycle, not throughout the business cycle, as is being proposed.
When Richard Nixon decided to institute price and wage controls against the advice of his CEA chairman, Paul McCracken, Mr. McCracken resigned. His successor as chairman, Herb Stein, was able to keep his intellectual integrity by famously stating, “This administration believes that price and wage controls are best administered by people who do not believe in them.” Some of President Reagan’s political advisers were furious that Reagan’s acting CEA head, William A. Niskanen, would not say and endorse things he did not believe. Lawrence B. Lindsey, George W. Bush’s first head of the National Economic Council, was vilified by many in the administration for correctly stating that the cost projections for the Iraqi war were grossly understated.
Advisers cannot expect to win every issue, but to be effective andtruly do their job, they have to know which issues are important enough to either win or resign over.
Me: At the very least, Team Obama has to be going crazy about the lack of effort on trade.
Washington doesn’t know how to handle Rep. Paul Ryan’s outline for how to balance the budget without raising taxes. House Majority Leader Steny Hoyer says the Wisconsin Republican’s plan is “unsustainable.” (Well, it makes Big Government unsustainable.) And an analysis from the Tax Vox blog takes issue with his revenue estimates.
Of course, the issue here is spending, spending, spending. The Washington Consensus is that taxes must go up, that it is not politically possible to cut spending. Ryan is trying to prove that consensus wrong with a little bit math and little bit of moxie.<
Here are some fun facts about California’s fiscal situation, in light of state college students protesting a 32 percent tuition hike (via WSJ):
1) In 1999, the Democratic legislature ran a reckless gamble that makes Wall Street’s bankers look cautious. At the top of a bull market, they assumed their investment returns would grow at a 8.25% rate in perpetuity—equivalent to assuming that the Dow would reach 25,000 by 2009—and enacted a huge pension boon for public-safety and industrial unions.
2) It let firefighters retire at age 50 and receive 3% of their final year’s compensation times the number of years they worked. If a firefighter started working at the age of 20, he could retire at 50 and earn 90% of his final salary, in perpetuity
3) In 2002, the state legislature further extended benefits to many nonsafety classifications, such as milk and billboard inspectors. More than 15,000 public employees have retired with annual pensions greater than $100,000.
4) In the last decade, government worker pension costs (not including health care) have risen to $3 billion from $150 million, a 2,000% jump, while state revenues have increased by 24%.
5) This year alone $3 billion was diverted from other programs to fund pensions, including more than $800 million from the UC system.
6) The governor’s office projects that over the next decade the annual taxpayer contributions to retiree pensions and health care will grow to $15 billion from $5.5 billion, and that’s assuming the stock market doubles every 10 years. With unfunded pension and health-care liabilities totaling more than $122 billion, California will continue chopping at higher-ed.
Brazil’s threat of tariff retaliation over U.S. cotton subsidies is only the latest eruption of rising protectionism around the world. President Barack Obama isn’t doing much to quell protectionist sentiment in the U.S., either. His passivity could prove costly.
Not that Obama has a problem with trade. In his State of the Union speech to Congress last January, he stated an ambitious goal of doubling U.S exports by 2015. It is trade policy that he seems uncomfortable with. That bold declaration in the speech was a direct result of lobbying from Obama’s economic advisers. But the wonks aren’t driving U.S trade policy in the Obama administration. The political team is. Its priority is passing healthcare reform. To pass healthcare reform, Obama needs his core union support. And a push for new trade agreements would alienate Big Labor.
So Obama has not nudged Congress to pass long-stalled treaties with Colombia, Korea and Panama. Instead, the emphasis has been on get-tough actions such as slapping preliminary duties on tires from China and bricks from Mexico. Nor has he tried to energize the Doha trade talks, pushing Brazil to first litigate via the World Trade Organization and now retaliate. And in the U.S., high unemployment has encouraged protectionist forces in Congress. A bipartisan House group just introduced a new bill to abandon the North American Free Trade Agreement, while one in the Senate is pushing for action against China because of its weak currency policy.
And the situation could worsen. To appease Congress and continue its recent populist tilt, the Obama administration will likely toughen language about China in the Treasury Department’s April report on currency policy. The next step would be to declare China a currency manipulator in the October report, right before the November mid-term elections.
If Obama really wants to rebuild America’s international stature and boost the global economy, trade is a perfect place to start. At the moment, world trade is projected to expand by just 4.3 percent in 2010 and by 6.2 percent in 2011, according to the World Bank. Not good enough, given a big drop in 2009. Once healthcare is either passed or defeated, Obama needs to get that trio of trade agreements passed. And he needs to defuse tensions with China. In short, Obama needs to lead.
This Bloomberg story gives it the old college try with “Obama Defies Pessimists as Rising Economy Converges With Stocks.” It points out that the economy is expanding, job losses are down and stocks are up.
But that is not really the point is it? Unemployment is still twice as high as the average of the past two decades, and the recovery shows every signs of being a sluggish one given the depth of the downturn. Plus, the massive amount of public debt makes what growth there has been seem artificial. Certainly the public doesn’t seem to buying it, a view reflected by the cautious tone of the White House. Lots of talk about pulling the economy back from the brink, less talk about a new Morning in America.
How is the healthcare reform endgame shaping up? The always insightful Dan Clifton of Strategas Research boils it down (as outlined by me):
1) The timeline continues to get pushed back which essentially means healthcare will not get done before recess and members will get an earful during the break (support for healthcare is upside down and opposition is twice as intense relative to support). Because the bill is unpopular, members are not pressing to vote on this bill.
2) According to one press report the House wants to skip passing the Senate bill entirely and use a “self executing rule” when the reconciliation bill passes then the Senate bill would also automatically pass. Just the fact that this is being contemplated shows how difficult it is for the House to round up the votes for passage, even before the abortion issue is taken into consideration.
3) And Sen. Conrad threw cold water on this self executing rule insisting that the Senate bill needs to be signed into law before the reconciliation fix could be enacted.
4) Another major hurdle developing is the question about whether the House bill can go right to the Senate floor – the legislation would have to go through committee. And while this delays the process (when time is of the essence) the more important point is that this could kill the bill if the legislation needs to go through the Senate Finance Committee with Blanche Lincoln being the deciding vote. Note she came out against reconciliation again yesterday despite her primary challenge.
5) And then there is the abortion issue. Since reconciliation rules will not permit a ban on abortion funding as needed to get the remaining votes for healthcare, the best strategy for passage was to pressure Senate Republicans not to oppose the provision in the Senate bill. The Catholic Bishops were successful in a similar move in the House last November but the Senate Republicans made it clear yesterday they will oppose the language, even if they agree with the policy. The only path forward in the House is to keep all the supporters of this bill in the yes column, get nearly all the Stupak supporters to defect despite their opposition to the Senate abortion language, and then convert a handful of no votes to yes, despite the fact that 37 of the 38 Dems that voted no are from Republican districts. And all this with a short timeline.
David Brooks in the NYT outlines many of the way Democrats are trying to game the CBO budget analysis of ObamaCare:
1) There is the doc fix dodge. The legislation pretends that Congress is about to cut Medicare reimbursements by 21 percent. Everyone knows that will never happen, so over the next decade actual spending will be $300 billion higher than paper projections.
2) There is the long-term care dodge. The bill creates a $72 billion trust fund to pay for a new long-term care program. The sponsors count that money as cost-saving, even though it will eventually be paid back out when the program comes on line.
3) There is the subsidy dodge. Workers making $60,000 and in the health exchanges would receive $4,500 more in subsidies in 2016 than workers making $60,000 and not in the exchanges. There is no way future Congresses will allow that disparity to persist. Soon, everybody will get the subsidy.
4) There is the excise tax dodge. The primary cost-control mechanism and long-term revenue source for the program is the tax on high-cost plans. But Democrats aren’t willing to levy this tax for eight years. The fiscal sustainability of the whole bill rests on the naïve hope that a future Congress will have the guts to accept a trillion-dollar tax when the current Congress wouldn’t accept an increase of a few billion.
5) There is the 10-6 dodge. One of the reasons the bill appears deficit-neutral in the first decade is that it begins collecting revenue right away but doesn’t have to pay for most benefits until 2014. That’s 10 years of revenues to pay for 6 years of benefits, something unlikely to happen again unless the country agrees to go without health care for four years every decade.
6) There is the Social Security dodge. The bill uses $52 billion in higher Social Security taxes to pay for health care expansion. But if Social Security taxes pay for health care, what pays for Social Security?
Me: I have blogged about many of these dodges over the past months. They make WH claims about “bending the curve” a joke. This bill will surely cost far more than the CBO anticipates.
Former Bear Stearns economist David Malpass is considering a run for US Senate in New York. If you believe in the wonder-working power of lower taxes, economic freedom and entrepreneurship, then you would probably find his candidacy an interesting one. The Washington Consensus, of course, is that spending cannot be cut so taxes must rise dramatically. Thus, Malpass would be a contrarian voice inside the Beltway.
We study economic growth and inflation at different levels of government and external debt. … Our main findings are: First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies. Second, emerging markets face lower thresholds for external debt (public and private)—which is usually denominated in a foreign currency. When external debt reaches 60 percent of GDP, annual growth declines by about two percent; for higher levels, growth rates are roughly cut in half. Third, there is no apparent contemporaneous link between inflation and public debt levels for the advanced countries as a group (some countries, such as the United States, have experienced higher inflation when debt/GDP is high.)
Me: It is the apparent WH belief that debt is a long-term problem only. But the R&R research warns that the rush to implement liberal spending priorities today risks sacrificing growth and a rising standard of living tomorrow.
Looks like British civil servants are striking over budget plans to cap severance pay (via Clusterstock). A sign of things to come in the United States, where tight government budgets are going to force spending cuts and layoffs. The dissatisfaction over American education plays into this, too. The political impact of this will be fascinating since the public employee unions may be the most important Democratic interest group.
As welfare was for Bill Clinton, education could be for Barack Obama — an issue that shows independence from his liberal base and allows for compromise with Republicans. Obama’s decision to support the authorities at the poorly performing Rhode Island school that fired its entire faculty has enraged teachers unions, as this NYTimes story documents. But it is hard to argue with the president’s reasoning: “If a school continues to fail its students year after year after year, if it doesn’t show signs of improvement, then there’s got to be a sense of accountability.”
Also on the education front, please read this NYTimes mag story on how to improve America’s teachers. You will be amazed at how little effort goes into instructing teachers on how to manage their classrooms or how to specifically teach various subjects. If these skills were improved, one expert concluded, “we could close the gap between the United States and Japan on these international tests within two years.”
This USA Today story has the kind of numbers that stick with people:
Overall, federal workers earned an average salary of $67,691 in 2008 for occupations that exist in both government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available. These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis.
Me: It’s the benefits that really stand out. There have been more and more stories out there about the fat union benefits of government workers, both federal and state. New Jersey Governor Chris Christie has been railing on this issue since he was elected last year. Here is a bit from a recent speech that got lots of play in the blogosphere:
Our citizens are already the most overtaxed in America. U.S. mayors hear it all the time. You know that the public appetite for ever-increasing taxes has reached an end. So when we freeze $475 million in school aid, I am hearing the reverberations from school boards saying now you are just going to force us to raise taxes. Well there is a 4 percent cap in place as you all know, yet school boards continue to give out raises which exceed that cap, just on salary. Not to mention the fact that most of them get no contribution towards the spiraling increase in health care benefits.
The percentage of federal civil servants making more than $100,000 a year jumped from 14 percent to 19 percent during the first year and a half of the recession. At the beginning of the downturn, the Transportation Department had one person making $170,000 or more a year; now it has 1,690 making that.
In the past decade, Los Angeles Unified School District officials spent $3.5 million trying to fire just seven of the district’s 33,000 teachers for poor classroom performance
The 2008 financial crisis killed John McCain’s chances of becoming president. But will it kill Mitt Romney’s, too?
The former Massachusetts governor and private equity investor supported the $700 billion bank bailout then and he still supports it today, albeit with a host of reservations and qualifications. The problem, of course, is that the Troubled Asset Relief Program is wildly unpopular among Republicans. And Romney, one can safely assume, would like to be their presidential nominee in 2012.
Yet one can hardly think of a more toxic issue for a GOP candidate in the Age of the Tea Party than support for TARP. Especially a candidate with a Wall Street background. Especially a candidate who many party activists suspect has the heart and soul of a raging moderate. To many conservatives, TARP is nothing more than extreme crony capitalism, Big Government rescuing Big Money. Here is how Michelle Malkin puts it: “Members of Congress who let themselves be bullied into [voting for the bailout] should be experiencing the biggest case of buyer’s remorse in U.S. history.”
Maybe Romney is having that experience. But there are few signs of it. This is what he told FOX News this week: “I hate the way TARP was administered, but I can tell you that we were on a precipice unlike anything we have known before in modern history with the potential of a complete collapse of our currency system and our financial system. Had we not taken action, you could have seen a real devastation.”
Yet Romney clearly knows his TARP support is a problem. He spends time in his new book, “No Apology: The Case for American Greatness,” explaining his position and making his case. Let’s take his key points one by one.
1) “Secretary [Hank] Paulson’s TARP prevented a systemic collapse of the national financial system.”
That is certainly the economic consensus, even among right-of-center economists and financial experts. This bit of analysis from Nicole Gelinas of the free-market Manhattan Institute is typical: “We were never going to escape this debacle without pumping massive amounts of taxpayer money into the financial system.”
There are objectors, of course. Stanford University economist John Taylor, for instance, argues that the TARP proposal itself incited a panic on Wall Street. But even many of these folks were in favor of government debt guarantees for banks and money market funds, as well as Federal Reserve liquidity measures. Having government do nothing was not a realistic option. And while many free-market economists have devised TARP alternatives since the fall of 2008, such proposals were hard to find at the moment of crisis or difficult to quickly implement.
2) “It was intended to prevent a run on virtually every bank and financial institution in the country.”
Or, in other words, TARP was about recapitalizing banks. But Americans thought it was more about unfreezing credit markets and keeping Wall Street lending to Main Street. So when Paulson called off the plan to buy troubled assets — the ones supposedly clogging up the system — and just injected capital, it looked like a bait-and-switch plan. Yet if the banks weren’t stabilized, lending would surely have come to a halt.
3) “But TARP as administered by Secretary Timothy Geithner was as poorly explained, poorly understood, poorly structured and poorly implemented as any legislation in recent history.”
This is confusing. Although it was under Geithner that TARP money was used for foreclosure mitigation, it was under Paulson that TARP shifted from an asset buying program to a capital injection program. And it was also under Paulson that TARP was used to bailout automakers and AIG. Has TARP become a slush fund? Sure, but both Republican Paulson and Democrat Geithner are to blame for that.
Bottom line: Doing nothing back in the fall of 2008 might have worked. It certainly would have negated years of moral hazard created by Washington’s Too Big To Fail approach toward the financial sector. But it would have been an amazingly high-risk proposition. That, especially with the banks now quickly repaying those billions in government bailouts. Even some early TARP critics have calmed down. The University of Chicago’s Luigi Zingales now admits TARP funds were “deployed with conditions not too far removed from market ones.”
Still, many conservatives will probably never see it that way. For them, TARP is a permanent, shining scarlet T on Romney. (They also don’t much like his health reforms in Massachusetts, nor his belief in man-made climate change.) But maybe as time passes and TARP doesn’t look quite as much like a money pit, maybe that letter won’t shine so brightly.
