krebscycle

If that’s confusing, there’s an even easier way to think about it. TARP made its first round of investments on Monday, October 13, 2008. As of November 21 last year, TARP was about to turn a paper profit, at least according to the Treasury Department, getting $432 billion back on $422 billion in investments. That’s a 2.4% total return over more than five years, or an annualized return of less than 0.5%. If the government had instead put its money into the stock market on Friday, October 10, 2008, it would have earned a total return of 132% over the same period, or more than 18.3% per year. [James Kwak]

Right, because if some other entity had stopped the bank panic, rescued the auto industry, and bailed out credit unions, then the stock market would have gone up. The US government should have just waited for this mysterious other entity to show up and then – PROFIT! This is like complaining about a builder who wasted so much concrete on the foundation instead of building some more floors on the top.

Yes, the government got back more money than it invested, if you are looking solely at TARP disbursements. But if Larry Summers evaluates his own investments that way, then he should find someone else to manage his money

Summers did not claim that the government’s investment was the most profitable possible. That’s actually not the purpose of government bailouts. This is what Summers wrote:

In the moment, though, the overwhelming imperative was restoring confidence at a time when complete breakdown looked like a real possibility. The government got back substantially more money than it invested. http://www.ft.com/cms/s/2/3ec604c0-ec96-11e3-8963-00144feabdc0.html#ixzz34FZmhiY9

He’s not arguing that the government maximized profits, whatever that might mean in this case. He is arguing that the Obama administration was a careful steward of public funds. Considering that the Democrats had to battle back against Paulson’s plan to just give money away and the Obama administration’s situation on taking office after Paulson had already sent out $350billion of TARP funds, that’s a pretty solid claim. Should the FDIC should evaluate each bank rescue against the possible returns from a mutual fund; should the DOE  compare investments in solar power to returns available by payday lending?  This is a ridiculous line of attack which has, probably unconsciously, incorporated all sorts of dumb libertarian arguments about the role of government.

I should also note that TARP rescued the Auto industry and 1 million jobs – something that seems to be hard for Obama administration critics to remember. If the “liberal” critics of the Obama administration had been able to curb their enthusiasm for joining in the right wing attack on government financing, TARP could have been extended into a rolling fund that the government could have used to provide financing to areas where the dysfunctional finance sector fears to tread: wind and solar, urban low income housing, minority small business,  … . But the “Progressives” are in the grip of Paulism and can’t seem to shake it.