I think it was, but what do I know. The good part is that it will not cost $750 billion.
This is a pretty interesting program that discusses the details surrounding TARP and the decision processes made at the time.
I think it was the right thing to do.
You mention that it will not cost $750 Billion. It was never supposed to cost that much, they were loans for crying out loud! But the media went wild and few people understood that we were not exactly just handing institutions the money forever.
Now it may be a valid argument that some institutions could go broke and therefore the loan money will be gone. That is true.
What was the alternative? 
Include a forced sale of some portion of the asset backed securities at a later date.
That’s easier to say in hindsight, though, and I doubt that such a thing could have been negotiated at the time. It would have also been nice to throw one of the too-big-to-fail banks to the wolves, too, to let the others know that it can happen. Again, probably not enough time to handle the negotiations, nor enough slack in the banking system to risk it.
But the basic idea? It has its downsides, but it was probably the best of a bad situation.
THUNDERDOME!!! Two men enter one man leaves.
Welcome to the jungle baby.
Funny thing is if we go back and see what was written…
Obama saved the national and maybe world economies. It is now time to make sure we can get healthy.
disclosure: I did not vote 4 Obama
In broad strokes, it was the right thing to do. Either that, or financial collapse.
But let’s not kid ourselves. It had a helluva lot of problems. People who fucked up got a hand from the government instead of suffering as much as they ought to have. AIG was just about the worst of the lot, a nearly bottomless pit sucking up taxpayer payer. It’s one of the few companies that the government won’t make an outright profit on with the bailout funds. We’re losing cash to the insurance giant. But it didn’t legally go bankrupt, for purposes of supporting the international financial system. Okay. Well and good. But because it wasn’t legally bankrupt, its counterparties got paid 100 cents on the dollar. That’s money straight of our pockets, and toward the sorts of companies whose names now represent all the worst things about bankers.
If we’d had a form of receivership–a form of temporary nationalization, like the FDIC uses–this wouldn’t have happened. Those various institutions shouldn’t have been cut down dead with their exposure to AIG, but they should’ve bled a little. The new bill that got through the Senate has some form of resolution authority that should take care of this sort of problem, if it’s well designed. But that last is the real kicker, isn’t it?
We have a House and a Senate version now. We’ll see if a good bill gets through conference.
I notice if I make it only about the people who fucked up on Wall Street and the International Banks, it sucks.
When I look at the whole of the big picture it becomes difficult to argue against the TARP thing. That said, it was never meant to be the only part of a solution. We need the GOP to get on board with things and try and find ways to fix teh system and stop playing games about socialism, take overs and other disingenuous bs meant to win elections.
Some people are still playing games that will benefit party rule at the expense of national security and stabilization of a sound economy.
Pick opn.e We can’t get on board with your pet little program and fix the “teh system”.
You cannoy gte on baord becuase you need assestense?
Hellestal (and any other economics-savvy Dopers) – if it’s not too much trouble once you’ve formed an opinion about it, would you post any thoughts about the reform bill in the current thread: What do you think of the just-passed financial regulation bill?
I’m very curious about the bill and would value reading specific discussion…if you’re so inclined, of course, as I understand the time and effort involved.
Some parts were probably more necessary to the national economy than others. Saving AIG was probably more critical than making loans to the banks, but of course most of the bank money has come back and AIG will likely be a big loss.
Loans to the car companies are also likely to be large losses, and it’s hard to see those as necessary to the larger economy, rather than simply politically driven.
TARP probably shouldn’t be considered simply on a stand alone basis. We should really be looking at all of the various programs that the government put in place.
The latest estimate from the Treasury Department is that TARP will end up losing a little over $100 billion. This will all be from the auto companies, AIG, and the Home Affordable Modification Program. The money provided to banks under the capital purchase program under TARP is projected to generate about a $17 billion gain for the government.
The various Maiden Lane facilities are projected to make money.
All funds loaned under the Term Securities Lending Facility (TSLF), Primary Dealer Credit Facility (PDCF), Commercial Paper Funding Facility (CPFF), and Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) have been repaid in full with interest. The Fed does not anticipate losing any money on the Term Asset Backed Securities Loan Facility (TALF). At one point the funds loaned under these various facilities was around $2 trillion. It is now around $300 billion with no anticipated losses.
Just about everything sounds pretty good with one huge exception. The money given to the Government Sponsored Entities of Fannie Mae and Freddie Mac look like a tremendous loser. A recent estimate of the losses of the GSEs is around $450 billion.
The problem isn’t so much the money it cost but rather the incentives it created. The executives, board members and shareholders of large banks and insurance companies now know that they can take on a lot of very risky (and potentially very profitable) positions and if they mess up big enough, they’ll be bailed out.
Gains will remain largely private but catastrophic losses will be spread to all of society. That’s setting up the incentive to ignore the probabilities of catastrophic loss. It’s undersandable to spare people from catastrophic loss when we’re talking about things like health* but when it comes to businesses, they should croak.
Couldn’t truly economy-critical businesses (like the market making arm of Goldman Sachs) have kept going even as they went under chapter 11?
*Who is indifferent to getting cancer because treatment is free?
I appreciate the sentiment, but letting an insurance company go under is not the same as letting a bank fail. In theory, banks can go bust. In theory, insurance companies are tightly regulated to prevent the risk of failure. The US government admitting that it doesn’t regulate insurance companies properly, to the extent that creditors are not paid, is not a trivial step.
Of course, AIG might not be an insurance company, but that might not help the US government’s credibility either.
Just a suggestion.
Again, to the extent that this applies to insurance companies this is purely a problem of regulation. Insurance companies should have implicit government guarantees and the government should make that nearly cost free by preventing insurance companies taking positions which are that risky.
This is probably not the place to discuss Solvency II…
The US government’s credibility doesn’t seem relevant at all. I have no idea what you’re trying to say with that.
The counterparty exposure here, the stuff that cost taxpayers the most, was through the Financial Products desk, not through the traditional insurance part of the business. The “theory” of insurance regulation isn’t relevant. Those dangerous deals were effectively unregulated, and everyone knew it. Credit-default swaps weren’t technically insurance. It was all about the “free market” liberating itself from the shackles of government bureaucrats, and other such claptrap. That was the whole point of the thing, before it blew up. And yet because of the bailout, the counterparties still got paid in full, when they would’ve taken extensive losses in a traditional bankruptcy. Privatized profits and socialized losses.
I guess a near half trillion loss from the GSEs should give it some perspective, but it was still incredibly fucked up. It should not have happened.
Why do you say they weren’t technically insurance? If used to hedge exposure then it seems to fit any definition of insurance that I know of.
Any definition except for the legal one. Which is the relevant technical definition as far as regulation is concerned.
Why don’t you provide this legal definition.