TARP, the Louisiana Purchase, and my Low Bar for Success
Can something be considered a success if its intended goals aren’t all met? Just yesterday, I was defending TARP to a friend who was suggesting TARP was just a giveaway to Wall Street and “theft” from “the people” (I assume he means average taxpayers). Taking my cues from people like Matt Ygelsias, I wrote,
I’m not crazy about how the bailouts were structured either. But of course, that’s looking at it in hindsight. Given that TARP was rushed through on the edge of complete financial collapse it seems that the bill was remarkably successful. So successful in fact that it seems the money that went to the banks will not only be repaid but could actually net taxpayers a profit (yes, you read the correctly).
In fact, what will end up costing taxpayers money are the funds that went to car companies and homeowners – but the cost is justified since it helped middle and working class people. Yet let’s not pretend that saving the nation’s largest banks from going under didn’t help middle and working class people – imagine what our economy would look like if the financial system collapsed. Who do you think would bear the brunt of that suffering? The rich? Try again…
TARP has been one of the most successful single pieces of legislation in the history of American government. It saved the world financial system for somewhere between $66 billion and $0 (or, perhaps, a profit of a few billion dollars).
I didn’t write quite that of course, but I admit that was largely my sentiment. The most recent DiA goes on to quote Felix Salmon approvingly on why TARP isn’t obviously a success and really a failure if you consider the goals of the policy.
[It] failed to get banks lending again; it failed to do anything about the foreclosure crisis; it failed to make any kind of a dent in the unemployment crisis; it failed to hold bankers accountable for their actions; and it succeeded in generating a broad-based mistrust of institutions: the government and the financial-services industry certainly, and the judicial system possibly as well.
TARP was always a rushed, ad hoc policy; even its architects never really had much of a vision for how it should be used. As such, its failure comes as little surprise. But let’s not try to pretend that it was some great success. Yes, it’s good that most of the money is likely to be repaid. But that’s neither necessary nor sufficient for TARP to be considered a success.
I walked right into the trap of falling into agreement with “those experts whose opinions support our ideological prejudices” when no expert consensus exists. I hope airing this disagreement about the policy will aid me in getting out of that ideological pitfall. But at risk of cutting my own ladder let me make a gambit and redefine success.
Salmon is right that TARP failed at everything he lists – most notably, bank lending. But while recognizing that it isn’t very courageous or impressive to lower standards or to redefine success in hindsight consider 2 scenarios. 1. TARP never passed. 2. TARP passed.
In scenario 1, there are devastating bank failures, unemployment is far worse, and the world economy is in a much bigger hole than it is in now – in other words the banks aren’t lending, the foreclosure crisis is worse, and all the other “failures” of passing TARP are pretty much the same, worse, or don’t even seem like concerns in comparison. In scenario 2, we saved the banks at little to no cost (or even a profit) for taxpayers, held the economy from catastrophe, and set up a situation where government could have, theoretically, come in and used fiscal and monetary stimulus to jump start the recovery.
Looking at those options, the public after all isn’t calling for a better TARP they say they would have preferred no TARP, is it fair to call scenario 2 a failure? If Rep. Brad Miller is right that if a similar situation happens again anything like TARP can’t be passed, Salmon and others will be wishing for a failure on the order of the original TARP. This isn’t to say that critics have no place to point out the failures of TARP so we can learn from them and hope to improve on them if something like that is needed again – but I just don’t think TARP as a whole can be called a failure.
If you told a policymaker in a vacuum that they could pass a policy that costs either very little, nothing, or earns money and saves the financial system and wider economy from collapse and depression, who wouldn’t jump at the chance to support that? Some critic could come along and say, “true, but this policy also doesn’t make banks lend, doesn’t increase employment, and doesn’t solve the housing crisis!” That policymaker might reasonably wonder if the critic is also hung up on the fact that Thomas Jefferson didn’t get more from the French in the Louisiana Purchase. If Jefferson had set out to also get the land northwest of the Louisiana Purchase’s boundary, should we consider it a failure? Keep in mind, many thought the Purchase was unconstitutional, it may have weakened state’s rights, and it increased the slave holding states. I still think anyone who calls the Louisiana Purchase for those reasons a failure is unappeasable. Can’t we just work on those specific breakdowns with subsequent legislation?
I hate having a low bar, but if all legislative failures were like TARP, we’d be in a much better place.