Mercury Rising 鳯女

Politics, life, and other things that matter

The bailout worked?

Posted by Charles II on October 4, 2010

That’s what the FT says, and they are usually reasonably straight. They ask not to excerpt their articles, but the gist of it is that the banks have succeeded in paying back almost all of the money, and the Administration has limited the cost of the crisis to 12.8% of GDP, regarded by the World Bank as below the average cost bailouts.

Those with cynical minds may think that (a) there will be a second wave to the crisis, though it looks like that will not be in the banking/shadow banking system, and that (b) there are substantial opportunity costs in running 10% unemployment. These tend to mask the cost of the crisis. But the Tea Party nonsense that the Feds just gave away money to the banks is not true. The Feds did make it very easy for the banks/shadow banks to earn money, and gave them free insurance (or in the case of Agencies, free retroactive insurance). So, there was a giveaway. It just wasn’t what low information voters think happened.

Anyway, for the FT to give the Obama Administration an “attaboy” is worth noticing.
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Update: As if on cue, Barry Ritholtz links to this article by Amy Schoenfeld in the NYT. $200B has been repaid, $180B is outstanding. At the very best, there will be a ::cough:: profit of $8B. Or, if not, a $130B loss. If the Treasury isn’t wearing rose-colored glasses.

It’s peanuts in the larger picture. It all depends on the first round having worked (which Chris Whalen says is not true; that the banks will go through a second-wave crisis.) The Tea Party–with its cries about a trillion dollar bank giveaway, dutifully parroted by The Hill– is full of manure, but so was the Treasury, the Bush Administration, the Republican Party, and the DLC Democrats.

Off-topic: Robert Shiller on the Multimedia link here talking about unemployment. Ignore Morgenson, click on Multimedia, jump to about 18 minutes, and you get Shiller.

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3 Responses to “The bailout worked?”

  1. C-Span was discussing this subject this morning, and pretty much was saying the same things — less money was actually loaned out to the banks, and of that money almost all has been repaid.

  2. David W. said

    Sure would be nice to see this story get a bit more play. Thanks for noting it!

    • Charles II said

      David, you may have noticed that I am not quite as enthusiastic as the FT. This is because I think the Administration seriously screwed up by not demanding a much bigger jobs package and a mortgage “cramdown” (granted, it was much harder to demand a cramdown in January of ’09 than it would have been in the Fall of ’08. But they could have promised a vigorous prosecution of fraud, and sold a cramdown as the price of being lenient on the shadow banks.) As someone who is very lenient on the Administration, you probably don’t want me to be the messenger.

      The more interesting part of the story to me is not who was right and who was wrong– which history will decide– but the fact that the FT allowed this bit of favorable news into its influential pages.

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