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To be fair, the banks got over 400+ billion in TARP money plus over 4 Trillion in newly printed Fed Reserve dollars to buy literally "toxic assets," synthetic m
by wallace_f 7y ago
To be fair, the banks got over 400+ billion in TARP money plus over 4 Trillion in newly printed Fed Reserve dollars to buy literally "toxic assets," synthetic mortgage-backed securities, and government debt purchased off their books to shore them up after they negligently destroyed themselves(1). Fundamental, necessary banking services which they are subsidized to perform are not rocket science, either. This was subsidizing risk-taking. This transfer of wealth to Wall St is by far the most egregious heist in the history of humanity.
1-https://www.brookings.edu/blog/up-front/2017/08/18/the-hutchins-center-explains-the-feds-balance-sheet/ https://www.brookings.edu/blog/up-front/2017/08/18/the-hutch...
- matt4077 7y agoTARP didn't cost anything. From Wikipedia[0]: "On December 19, 2014, the U.S. Treasury sold its remaining holdings of Ally Financial, essentially ending the program. TARP recovered funds totalling $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit or an annualized rate of return of 0.6% and perhaps a loss when adjusted for inflation" [0]: https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program
- monetus 7y agoand perhaps a loss when adjusted for inflation... I've seen some spectacularly detailed comments on this from other hn users, specifically in regards to the inequity of QE. If anyone more knowledgeable could comment, I would appreciate it.
- aqme28 7y agoThey made back money, but less than they would have if they had just parked it in regular bonds. It's not an absolute loss of moneyt--it's a loss relative to what they would have done if they hadn't invested in TARP.
- runako 7y ago> TARP didn't cost anything This assumes zero value of having the Treasury backstop a business. There is always a cost associated with making an investment (which TARP was). In a sense, the entire discipline of pricing risk is based on calculating this cost. Whether or not the chosen risk eventually paid off is a different question than the whether the risk had a cost to begin with. * - I was a proponent of TARP as one of the better risks on the table.
- wallace_f 7y agoI guess when you pump 4 trillion dollars and a federal guarantee of "we wont let these assets fail" into "toxic assets" then they become worth something.
- aqme28 7y agoWhy is TARP the only program we judge with ROI? Investment into NASA or infrastructure or education also has a return on investment, but anytime TARP is mentioned in comparison someone will bring up its ROI. I know the answer is that the ROI for TARP is so much easier to quantify, but I still want to make the distinction that it's not unique for a government program.
- naasking 7y ago> Why is TARP the only program we judge with ROI? Seriously. The ROI of solving the homeless and mental health crisis to the point where most of them can get back to work and become tax paying citizens is probably pretty good too.
- reallydude 7y agoThere's not a lot of evidence that homelessness and mental health welfare will generate net positive tax revenue. Ever met someone on anti-psychotics? They go through the rest of their life barely able to grasp new concepts with a drug specifically designed to mute that part of their brain, alongside the side effects on their relatively short-lived organs being poisoned by the same drug cocktail.
- naasking 7y agoThose needing anti-psychotics are a small subset of the population I mentioned.
- DanBC 7y ago> Ever met someone on anti-psychotics? Yes, I meet very many people who take a variety of anti-psychotic meds. > They go through the rest of their life barely able to grasp new concepts with a drug specifically designed to mute that part of their brain, This describes a few of them, but not most of them.
- howard941 7y agoThe tremendous moral hazard generated by risk-proofing the FIRE industry's bad practices w/r/t fraud-laden risk measures, CDOs, and CDSs caused orders of magnitude greater losses to ordinary Americans than the one time $15.3B windfall to the treasury. Better that the govt had cut $40K checks to every taxpayer than saved the banks' shareholders.
- TomVDB 7y agoYou're not wrong, but all of that is a moral or unquantifiable point. And it doesn't change the fact that TARP didn't cost any real money.
- maxxxxx 7y agoIf TARP was such a great deal why did the government have to do it? Why didn't private investors jump in and support the banks?
- snowwrestler 7y agoIf highways are such a great deal, why does the government have to fund them? If national defense is such a great deal, why does the government have to fund it? If FDIC insurance is such a great deal, why does the government have to fund it? Why does the government have to do anything? Why don't private investors jump in and do everything? The answer is: because there are certain things that are only a great deal if they are done by everyone all at once. Left to individual players, sometimes the incentives align like running from a bear--I don't have to outrun the bear, I just have to outrun one other person. This is why we have government at all. Humanity was not handed a government, we invented it to solve problems that could not solved by piecemeal individual action. And for TARP, a reminder that it came after Lehman failed and money markets broke the buck. The first House vote on TARP failed. It was adopted at the last minute, only as it became clear that it was necessary.
- maxxxxx 7y agoI accept that national defense is not a profit center, neither are highways. But they are good for everybody so it's ok that the taxpayer pays for them. The same may be true for TARP but I don't like to hear that TARP made profit because it didn't. Since 2008 we had huge deficits, banks got a backstop for free, the fed had to take on a lot of assets it normally should't have to, interest rates are very low. These all have a price. TARP was not a benign thing but instead we should make sure this never happens again.
- zaroth 7y agoHighways are absolutely a profit center. The Fed spends ~$50 billion/year on highways and gets ~20% of the entire productivity of the nation in return. ($4 trillion on $20 trillion GDP) If the entire highway system increases GDP at least $250 billion (1.25% of GDP) then highways are profitable.
- dTal 7y agoIt was the refutation to end all refutations that the reason we don't do $IMPORTANT_THING is "we can't afford it". Almost any utopian goal you can imagine is achievable with that budget. Switch the entire power infrastructure to solar? Easy. Food, houses for everyone? Petty cash. University education for all? Well within the budget. Essentially, it amounts to socialism for huge corporations, but not for little humans. "Too big to fail" for them - "too poor to survive" for us.
- rayiner 7y agoYou're wrong on two fronts. First, you're ignoring the basic difference between expenditure and investment. When the government spends a dollar on healthcare, that may be an "investment" in an abstract sense, but the government is not directly getting that money back. In budgetary terms, it's expenditure. That is not true for the financial bailouts. There, the government didn't just spend money, it got assets in return. With respect to TARP, the government got most of that $400 billion back. It made a nominal profit, and adjusted for inflation maybe you can book it as a $24 billion loss: https://www.nationalreview.com/2015/01/overselling-tarp-myth-15-billion-profit-matt-palumbo https://www.nationalreview.com/2015/01/overselling-tarp-myth.... With respect to quantitative easing, what you're referring to is the Fed's SOMA operations. The Fed bought $3.5 trillion in assets (securities and treasuries--i.e. the right to be repaid money in the future). It is getting that money back as those assets mature. Right now, the Fed has about a $67 billion unrealized loss on those assets: https://seekingalpha.com/article/4225750-deterioration-fed-balance-sheet https://seekingalpha.com/article/4225750-deterioration-fed-b.... That means the fair market value of the assets is $67 billion less than the Fed's purchase price. So the actual cost of those programs is the $24 billion and $67 billion losses, not the $400 billion and $4 trillion it cost to purchase those assets. To put those numbers into perspective, the government has a portfolio of $1.5 trillion in student loans. Losses on that portfolio will cost the government $180 billion over the next decade: https://www.forbes.com/sites/prestoncooper2/2017/08/04/why-government-doesnt-profit-from-student-loans/#16db07f6eb63 https://www.forbes.com/sites/prestoncooper2/2017/08/04/why-g.... Second, you dramatically underestimate the cost of those social welfare programs. If we scaled up our welfare system to Swedish levels, that would cost an additional $2.2 trillion more per year.[2] That is five times the upfront cost of TARP ($400 billion), and 100 times the actual cost of TARP ($24 billion). Welfare is expensive. Even if universal healthcare reduces our healthcare spending to German or French levels, we're talking 10-12% of GDP, or $2.3 trillion: https://data.oecd.org/healthres/health-spending.htm https://data.oecd.org/healthres/health-spending.htm. Unlike the financial bailouts, that's (1) money you have to spend every year, not just once-in-a-generation; and (2) money you're not getting back. Put it another way. Together, all levels of government already spend about $7.4 trillion per year. $400 billion--what the government spent on a once-in-a-generation bailout, was just 6% of what it spends every year. $24 billion--the actual long-term cost of TARP, is just 0.3% of government's yearly expenditures. [1] Real-world example. Say in 2008 my parents house was worth $500k. The housing market collapses, and suddenly my parents need to sell their house. If they put it on the market, it would go at fire sale, say $200k. I bail them out, buying it for $450k. What was my cost of bailing them out? It wasn't $450k. It was $450k minus whatever I can ultimately sell the asset for. Say the market never recovers and I sell the house for $400k, 20% below the peak. The "bail out" cost me $50k, not $450k. [2] Swedish government spending is 49% of GDP, versus 38% of GDP in the U.S. https://data.oecd.org/gga/general-government-spending.htm https://data.oecd.org/gga/general-government-spending.htm. That 11% of GDP difference amounts to about $2.2 trillion.
- nickik 7y agoYou cant compare money created by the Fed to money spent by the government. Thats just a surefire way to musunderstand everything. Tax payers to not have to pay interest on that money. You are right about tarp however, that was idiotic and totally unneeded.
- wallace_f 7y agoMoney doesn't get its value from the Fed. It gets its value from what economists call real goods and services. If nobody was willing to exchange their work product for our money, it would be virtually worthless. So when the Fed electronically debits and credits their account with newly created money and a new purchase of a toxic asset, they're necessarily stealing someone else's (everyone else's, really) work product, in real terms.
- outside1234 7y agoWell TARP was needed but there should have been systems in place to prevent it being needed (not allowing firms to grow to "too big to fail")
- jessaustin 7y agoThe firms have been big enough to control who is appointed to supervise (and bail out, when necessary) them for a long time. Nothing that happened in 2007-10 was going to change that. All the promises were bullshit, because that's all they possibly could have been.
- georgeecollins 7y agoYeah I am not against the farmers or the banks. I'd just like to see some love for space exploration.
- wallace_f 7y agoThis reminds me that scarcity is the central problem of economice, but in modern politics people seem to pretend it doesn't exist.