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Contrary to popular belief, the government actually made a profit on TARP loans. They were loans and were paid back.[1] [1]https://en.wikipedia.org/wiki/Troubl

Contrary to popular belief, the government actually made a profit on TARP loans. They were loans and were paid back.[1] [1]https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program

bugbuddy 3y ago
What about moral hazard? People have forgotten about responsibility because the nanny state comes to the rescue every time anyone cries momma.
- deleted 3y ago
  [deleted]
- FrustratedMonky 3y ago
  We should be able to have both. Government that smooths out the bumps. Provides some 'smoothing' to society so it doesn't crater and fall apart. While also holding people accountable and criminally charging corporate executives. It does seem like there is some reductionism to just crying 'nanny', since the same people that dislike the 'nanny' state also complain when the 'nanny' wants to hold people accountable, since they should be free to cheat. Yelling 'Freedom' anytime the state steps in. You can't have both, complain when the state is a 'nanny' and helping, and then complain when the state disciplines people, the 'nanny' when stopping the child from doing things that will hurt itself.
- Aunche 3y ago
  Most banks saw their valuation drop by 90+% during the recession. Is that enough responsibility considering that banks employed millions of people, the majority of which and nothing to do with mortgages?
  - no_wizard 3y ago
    In a word, no. Why weren't executives and boardrooms held liable? That would have been a great start. Actually putting teeth behind regulations, clawing back bonuses and invalidating golden parachutes and culpable executives going to prison, preferably for a long time. None of the executives involved should legally be allowed to work in finance again. If I as an individual pulled the stunts they did, or a smaller organization did, they'd be labeled fraudsters and prosecuted to the fullest extent of the law. What TARP and its aftermath proves is that if you're big enough, you escape all real liability for your actions, and the public and your employees get to suffer the consequences. Why should executives and boardrooms be left off the hook while the American public pays the price?
- JumpCrisscross 3y ago
  > What about moral hazard? Less than a year ago, we suffered the second, third and fourth largest bank failures in our nation's history [1]. Shareholders were zeroed. [1] https://en.wikipedia.org/wiki/List_of_largest_bank_failures_in_the_United_States https://en.wikipedia.org/wiki/List_of_largest_bank_failures_...
  - bugbuddy 3y ago
    Those were also cases where the power-that-be decided to change the laws and regulations on the fly and removed the FDIC insurance limit to protect their friends in high places.
    - JumpCrisscross 3y ago
      > the power-that-be decided to change the laws and regulations on the fly and removed the FDIC insurance limit to protect their friends in high places No laws were changed. The FDIC always had broad discretion in managing assets and liabilities under receivorship. You are correct, however, in that a precedent was set. Where you are incorrect is in the friends in high places bit. I was near (though not on) ground zero in those crises, and to the degree politics were involved, it was in the goodwill that would have resulted from visibly screwing certain Silicon Valley elites. If Signature hadn't failed, there is a good chance SVB's depositors would have been capped at the legal limit.
legolas2412 3y ago
If only I could be in so much debt and the govt gives me a loan with such generous terms. The government undoubtedly provided its backing to the banks. That "profit" is not commensurate to the risk that the govt took on.
- tmaly 3y ago
  that is not a bad idea. Imagine qualified homeowners or car owners being able to refinance at the 30 year treasury bond rate?
- Aunche 3y ago
  Last I checked, loans with generous terms given to people were called to be cancelled because they were "exploitative." For ordinary people, it makes much more sense for aid to come from a more direct means. > That "profit" is not commensurate to the risk that the govt took on. That's because the bailouts was intended to stabilize the economy rather than to turn a profit.
  - no_wizard 3y ago
    >Last I checked, loans with generous terms given to people were called to be cancelled because they were "exploitative." What do you mean by this exactly? I don't know what this is in reference to. Never mind the case, the biggest problem with TARP isn't the money per se, its the lack of substantially increased regulation and teeth to enforce it. Executives and boardrooms should have been bankrupted as the government should have clawed back pay, personal assets, and bonuses to pay for the damage that was done. In another words, boardrooms and c-suites should have been humiliated and fired en masse, with prison time for those culpable. That would have been a good start. TARP funds were handed out with no teeth. The senate hearings largely ended up being for show, and only a few executives were held feet to the fire and even so, it was brief. Not to mention, how the heck are these people still allowed to work in finance at all.
- JumpCrisscross 3y ago
  > only I could be in so much debt and the govt gives me a loan with such generous terms This was the CARES Act.
dxhdr 3y ago
"Through the Treasury, the US Government actually booked $15.3 billion in profit, as it earned $441.7 billion on the $426.4 billion invested." So over the 5 years of holding those assets, that's a rate of return of 0.7%?
- tines 3y ago
  I mean, given the fact that the Government isn't a business with a goal of making money, that seems pretty good, no?
  - thfuran 3y ago
    As you say, their profit isn't the point. Giving someone a loan with low enough interest is basically just handing them money free and clear with extra steps. So the real question is whether the handouts to the banks helped the populace or came at their expense. Would other uses of the money have helped more?
    - throw_nbvc1234 3y ago
      > Giving someone a loan with low enough interest is basically just handing them money free and clear with extra steps If you ignore the "getting your money back" part yes.
      - thfuran 3y ago
        No, you just have to not ignore inflation. Or the things they can do with the money in the mean time.
  - Geisterde 3y ago
    Yes and no. The government still has to pay interest on its debt, which is paid with tax receipts. The government shouldnt be in the business of making money, yes, but it also has to spend less than it makes. In this case, these loans would have had a negative real yield, meaning they made things worse debt wise. The consequence for higher debt, is devaluation of the dollar and these massive and frequent swings in economic conditions.
Retric 3y ago
The government lost money when accounting for interest payments on government debt, or even just inflation. Where it benefited was in potentially reducing economic harm, but the short term gain is offset by long term systemic issues.
blindriver 3y ago
Sure the government made money by dropping interest rates to zero and forcing safe money into every form of other investment. However that also caused the greatest gap in income inequality ever. Those with assets got extremely wealthy and those living paycheck to paycheck got fucked. This is why no one can afford a house in the Bay Area unless you had money in stocks or real estate already.
- giantg2 3y ago
  "This is why no one can afford a house in the Bay Area unless you had money in stocks or real estate already." The fact that people could afford houses in other areas seems to support that group-think and constrained supply is really at the heart of that issue. Also, affordability was an issue prior to the crisis (well, true affordability because the loans were too easy to get for many).
  - dboreham 3y ago
    I moved to the Bay Area in 1996 and there was no way I could afford to buy a house there then.
    - andrewljohnson 3y ago
      Did you have any savings? At what point in your career were you? Anywhere in the Bay Area, or in the neighborhoods you were willing to live in? What weee your constraints?
    - xhkkffbf 3y ago
      Yup. Affordability in area is always hard because the companies pay the minimum to get someone to walk through the door. When you're new, you're competing for work with people who already have housing and are looking for a new job. So they can underbid you.
- hluska 3y ago
  A large number of mainstream economists believe that without TARP the entire global banking system would have collapsed, credit would have dried up and a depression would have been long lasting. This is one of those situations where there was no good way out. The least awful option ended up being the best out. The real issue was that Timothy Geithner, Ben Bernanke and Henry Paulson could not effectively communicate the economic issues during an election. As much as I respect John McCain, his decision to end his campaign to ‘return to Washington’ was an unmitigated disaster. Both for the economy as a whole and for that manifestation of the Republican Party. We can draw a direct line from that stunt through the Tea Party and into today’s current populist climate. Long rambling explanation short, I don’t believe there were other options. Decisions were made in real time and in many cases, they had to be made overnight. Two major deals that would have dramatically altered the response to the subprime crisis both fell apart over night on a weekend. Ben Bernanke was (and remains) one of the world experts on the Great Depression. His education lead him to take policy steps that would prevent another Great Depression. Maybe we’re worse off, maybe we’re not. But I’m glad I didn’t live my entire thirties under a depression.
tryptophan 3y ago
If Biden loaned me 1 billion at 1% for a year and then I put it into money market funds paying 5%, I would pay it back after a year and have made 40 million on the side. Everyone wins, even the government profited 10 million!!! Did I just invent an infinite money hack to make everyone a millionaire?
- cma 3y ago
  It was definitely a subsidy even if fully paid back, but what were money markets paying back then? Plus at one point money markets briefly locked up from withdrawals and I'm not sure banks are allowed to invest in them though they also made companies into banks that weren't banks.
SamPatt 3y ago
A few billion in profit doesn't come close to canceling out the moral hazard involved. Privatizing profits but socializing losses creates perverse incentives, besides being deeply unfair.
- JumpCrisscross 3y ago
  > few billion in profit doesn't come close to canceling out the moral hazard involved Sure. But the reforms enacted thereafter do.
  - SamPatt 3y ago
    Sure. Words speak louder than actions, right?
    - JumpCrisscross 3y ago
      > Words speak louder than actions The second, third and fourth largest bank failures in the nations history weren’t actions?
no_wizard 3y ago
I know TARP didn't cost anything monetarily[0]. I state that one of the observations you can make about TARP and its aftermath is that banks weren't forced to do business differently and the bulk of the TARP money didn't go to help average Americans. There were other paths than TARP. The fact it "didn't cost the government anything" is a red herring, in that it didn't produce the desired behavior or outcomes that were intended as the TARP money was suppose to have strings attached. All I see is reasons for strong regulation and breaking up the banks so that "main street" banking is wholly separated from "wall street" banking, so losses can't cascade the same way, even if is at the expense of some marginal profits. Why should deposits and traditional lending be exposed to wall street speculation? This what happens when you allow speculative finance, corporate investment banking[1] and (for lack of a better term) regular banking to co-exist in the same institution. Boring banks are good. We used to have a lot of them before the M&A sprees of the 1980s and 1990s, which was purely fueled by consolidation which in turn, those consolidated assets were invested in riskier and riskier financial markets and other endeavors. I will continue to argue it was not a benefit to the American public. [0]: Though not all costs are directly monetary, or even monetary at all. One outcome of TARP and that time period is everyone is now comfortable with the idea of "too big too fail" and seemingly, governments are willing to bailout risky financial speculation of N size[2] with no consequences for those who made the decisions to participate in that speculation in the first place. Keep in mind too, as noted elsewhere in this thread, its still up to debate whether that is strictly true or if the total cost has not been calculated correctly [1]: I don't know where to draw the line here because "investment banking" is a really broad term, that covers everything from M&A finance to market making to individual investment services under the umbrella term. For arguments sake, I'm sticking with "corporate investment banking" to hopefully add clarity [2]: N = whatever the minimum threshold is that financial institutions can convince the government to bail them out for while arguing not doing so will cause "a disproportional economic downturn"

bugbuddy 3y ago

What about moral hazard? People have forgotten about responsibility because the nanny state comes to the rescue every time anyone cries momma.

deleted 3y ago
[deleted]
FrustratedMonky 3y ago
We should be able to have both. Government that smooths out the bumps. Provides some 'smoothing' to society so it doesn't crater and fall apart. While also holding people accountable and criminally charging corporate executives. It does seem like there is some reductionism to just crying 'nanny', since the same people that dislike the 'nanny' state also complain when the 'nanny' wants to hold people accountable, since they should be free to cheat. Yelling 'Freedom' anytime the state steps in. You can't have both, complain when the state is a 'nanny' and helping, and then complain when the state disciplines people, the 'nanny' when stopping the child from doing things that will hurt itself.
Aunche 3y ago
Most banks saw their valuation drop by 90+% during the recession. Is that enough responsibility considering that banks employed millions of people, the majority of which and nothing to do with mortgages?
- no_wizard 3y ago
  In a word, no. Why weren't executives and boardrooms held liable? That would have been a great start. Actually putting teeth behind regulations, clawing back bonuses and invalidating golden parachutes and culpable executives going to prison, preferably for a long time. None of the executives involved should legally be allowed to work in finance again. If I as an individual pulled the stunts they did, or a smaller organization did, they'd be labeled fraudsters and prosecuted to the fullest extent of the law. What TARP and its aftermath proves is that if you're big enough, you escape all real liability for your actions, and the public and your employees get to suffer the consequences. Why should executives and boardrooms be left off the hook while the American public pays the price?
JumpCrisscross 3y ago
> What about moral hazard? Less than a year ago, we suffered the second, third and fourth largest bank failures in our nation's history [1]. Shareholders were zeroed. [1] https://en.wikipedia.org/wiki/List_of_largest_bank_failures_in_the_United_States https://en.wikipedia.org/wiki/List_of_largest_bank_failures_...
- bugbuddy 3y ago
  Those were also cases where the power-that-be decided to change the laws and regulations on the fly and removed the FDIC insurance limit to protect their friends in high places.
  - JumpCrisscross 3y ago
    > the power-that-be decided to change the laws and regulations on the fly and removed the FDIC insurance limit to protect their friends in high places No laws were changed. The FDIC always had broad discretion in managing assets and liabilities under receivorship. You are correct, however, in that a precedent was set. Where you are incorrect is in the friends in high places bit. I was near (though not on) ground zero in those crises, and to the degree politics were involved, it was in the goodwill that would have resulted from visibly screwing certain Silicon Valley elites. If Signature hadn't failed, there is a good chance SVB's depositors would have been capped at the legal limit.

legolas2412 3y ago

If only I could be in so much debt and the govt gives me a loan with such generous terms. The government undoubtedly provided its backing to the banks. That "profit" is not commensurate to the risk that the govt took on.

tmaly 3y ago
that is not a bad idea. Imagine qualified homeowners or car owners being able to refinance at the 30 year treasury bond rate?
Aunche 3y ago
Last I checked, loans with generous terms given to people were called to be cancelled because they were "exploitative." For ordinary people, it makes much more sense for aid to come from a more direct means. > That "profit" is not commensurate to the risk that the govt took on. That's because the bailouts was intended to stabilize the economy rather than to turn a profit.
- no_wizard 3y ago
  >Last I checked, loans with generous terms given to people were called to be cancelled because they were "exploitative." What do you mean by this exactly? I don't know what this is in reference to. Never mind the case, the biggest problem with TARP isn't the money per se, its the lack of substantially increased regulation and teeth to enforce it. Executives and boardrooms should have been bankrupted as the government should have clawed back pay, personal assets, and bonuses to pay for the damage that was done. In another words, boardrooms and c-suites should have been humiliated and fired en masse, with prison time for those culpable. That would have been a good start. TARP funds were handed out with no teeth. The senate hearings largely ended up being for show, and only a few executives were held feet to the fire and even so, it was brief. Not to mention, how the heck are these people still allowed to work in finance at all.
JumpCrisscross 3y ago
> only I could be in so much debt and the govt gives me a loan with such generous terms This was the CARES Act.

dxhdr 3y ago

"Through the Treasury, the US Government actually booked $15.3 billion in profit, as it earned $441.7 billion on the $426.4 billion invested." So over the 5 years of holding those assets, that's a rate of return of 0.7%?

tines 3y ago
I mean, given the fact that the Government isn't a business with a goal of making money, that seems pretty good, no?
- thfuran 3y ago
  As you say, their profit isn't the point. Giving someone a loan with low enough interest is basically just handing them money free and clear with extra steps. So the real question is whether the handouts to the banks helped the populace or came at their expense. Would other uses of the money have helped more?
  - throw_nbvc1234 3y ago
    > Giving someone a loan with low enough interest is basically just handing them money free and clear with extra steps If you ignore the "getting your money back" part yes.
    - thfuran 3y ago
      No, you just have to not ignore inflation. Or the things they can do with the money in the mean time.
- Geisterde 3y ago
  Yes and no. The government still has to pay interest on its debt, which is paid with tax receipts. The government shouldnt be in the business of making money, yes, but it also has to spend less than it makes. In this case, these loans would have had a negative real yield, meaning they made things worse debt wise. The consequence for higher debt, is devaluation of the dollar and these massive and frequent swings in economic conditions.

Retric 3y ago

The government lost money when accounting for interest payments on government debt, or even just inflation. Where it benefited was in potentially reducing economic harm, but the short term gain is offset by long term systemic issues.

blindriver 3y ago

Sure the government made money by dropping interest rates to zero and forcing safe money into every form of other investment. However that also caused the greatest gap in income inequality ever. Those with assets got extremely wealthy and those living paycheck to paycheck got fucked. This is why no one can afford a house in the Bay Area unless you had money in stocks or real estate already.

giantg2 3y ago
"This is why no one can afford a house in the Bay Area unless you had money in stocks or real estate already." The fact that people could afford houses in other areas seems to support that group-think and constrained supply is really at the heart of that issue. Also, affordability was an issue prior to the crisis (well, true affordability because the loans were too easy to get for many).
- dboreham 3y ago
  I moved to the Bay Area in 1996 and there was no way I could afford to buy a house there then.
  - andrewljohnson 3y ago
    Did you have any savings? At what point in your career were you? Anywhere in the Bay Area, or in the neighborhoods you were willing to live in? What weee your constraints?
  - xhkkffbf 3y ago
    Yup. Affordability in area is always hard because the companies pay the minimum to get someone to walk through the door. When you're new, you're competing for work with people who already have housing and are looking for a new job. So they can underbid you.
hluska 3y ago
A large number of mainstream economists believe that without TARP the entire global banking system would have collapsed, credit would have dried up and a depression would have been long lasting. This is one of those situations where there was no good way out. The least awful option ended up being the best out. The real issue was that Timothy Geithner, Ben Bernanke and Henry Paulson could not effectively communicate the economic issues during an election. As much as I respect John McCain, his decision to end his campaign to ‘return to Washington’ was an unmitigated disaster. Both for the economy as a whole and for that manifestation of the Republican Party. We can draw a direct line from that stunt through the Tea Party and into today’s current populist climate. Long rambling explanation short, I don’t believe there were other options. Decisions were made in real time and in many cases, they had to be made overnight. Two major deals that would have dramatically altered the response to the subprime crisis both fell apart over night on a weekend. Ben Bernanke was (and remains) one of the world experts on the Great Depression. His education lead him to take policy steps that would prevent another Great Depression. Maybe we’re worse off, maybe we’re not. But I’m glad I didn’t live my entire thirties under a depression.

tryptophan 3y ago

If Biden loaned me 1 billion at 1% for a year and then I put it into money market funds paying 5%, I would pay it back after a year and have made 40 million on the side. Everyone wins, even the government profited 10 million!!! Did I just invent an infinite money hack to make everyone a millionaire?

cma 3y ago
It was definitely a subsidy even if fully paid back, but what were money markets paying back then? Plus at one point money markets briefly locked up from withdrawals and I'm not sure banks are allowed to invest in them though they also made companies into banks that weren't banks.

SamPatt 3y ago

A few billion in profit doesn't come close to canceling out the moral hazard involved. Privatizing profits but socializing losses creates perverse incentives, besides being deeply unfair.

JumpCrisscross 3y ago
> few billion in profit doesn't come close to canceling out the moral hazard involved Sure. But the reforms enacted thereafter do.
- SamPatt 3y ago
  Sure. Words speak louder than actions, right?
  - JumpCrisscross 3y ago
    > Words speak louder than actions The second, third and fourth largest bank failures in the nations history weren’t actions?

no_wizard 3y ago

I know TARP didn't cost anything monetarily[0]. I state that one of the observations you can make about TARP and its aftermath is that banks weren't forced to do business differently and the bulk of the TARP money didn't go to help average Americans. There were other paths than TARP. The fact it "didn't cost the government anything" is a red herring, in that it didn't produce the desired behavior or outcomes that were intended as the TARP money was suppose to have strings attached. All I see is reasons for strong regulation and breaking up the banks so that "main street" banking is wholly separated from "wall street" banking, so losses can't cascade the same way, even if is at the expense of some marginal profits. Why should deposits and traditional lending be exposed to wall street speculation? This what happens when you allow speculative finance, corporate investment banking[1] and (for lack of a better term) regular banking to co-exist in the same institution. Boring banks are good. We used to have a lot of them before the M&A sprees of the 1980s and 1990s, which was purely fueled by consolidation which in turn, those consolidated assets were invested in riskier and riskier financial markets and other endeavors. I will continue to argue it was not a benefit to the American public. [0]: Though not all costs are directly monetary, or even monetary at all. One outcome of TARP and that time period is everyone is now comfortable with the idea of "too big too fail" and seemingly, governments are willing to bailout risky financial speculation of N size[2] with no consequences for those who made the decisions to participate in that speculation in the first place. Keep in mind too, as noted elsewhere in this thread, its still up to debate whether that is strictly true or if the total cost has not been calculated correctly [1]: I don't know where to draw the line here because "investment banking" is a really broad term, that covers everything from M&A finance to market making to individual investment services under the umbrella term. For arguments sake, I'm sticking with "corporate investment banking" to hopefully add clarity [2]: N = whatever the minimum threshold is that financial institutions can convince the government to bail them out for while arguing not doing so will cause "a disproportional economic downturn"