Monday, December 7, 2009

The Curious Case of the Missing $100bn

. Monday, December 7, 2009

The WSJ says that the Obama administration expects to lose $141bn from TARP, down from previous estimates of $341bn. The NYT says that the Obama administration expects to lose $42bn from TARP, down from previous estimates of $341bn. It's not that I'm not grateful, but where'd the NYT find that extra $99bn?

Turns out, it's buried:

The officials said the government could ultimately lose $100 billion more from the bailout program in new loans to banks, aid to troubled homeowners and credit to small businesses.

But that's the pessimistic projection, and I'm feeling good today. Check it out: the bank bailouts, subject of much consternation and populist rage, will actually make the government money. About $19bn, in fact. A certain somebody saw this one coming. So where are these losses coming from? Main St. (and London):

The estimated $42 billion in losses is a net figure that accounts for some profits to offset the losses. The Treasury officials said the government had lost about $60 billion, roughly half to Chrysler and General Motors and the other half to the insurance giant American International Group.

Had we not bailed out GM and Chrysler, we could've saved the entire global economy for about $30bn, maybe less. Call me a statist, but I think that's a friggin' bargain.


Thomas Oatley said...

But you are closing the book far too early on this account.

President Barack Obama is expected to raise the idea of using repaid TARP funds for a jobs bill in a speech he plans to give on Tuesday. On Friday, White House press secretary Robert Gibbs acknowledged that repaid bailout money is "certainly being looked at" for a jobs bill.

Pretty sure that money won't be paid back, my statist friend.

Kindred Winecoff said...

No doubt. I never said that the government would use that money wisely. I'm not *that* much of a statist.

Thomas Oatley said...

I don't see how you can be any degree of statist if you don't believe that government *generally* spends money wisely.

Also, shouldn't we talk about moral hazard before we conclude that the financial bailout was a good thing rather than an apparently necessary policy response to prior bad government policy that will merely cause further bad policy choices down the road?

Kindred Winecoff said...

our two positions are not mutually exclusive: i said we saved the global economy for relatively little money (compared to what we thought it might cost), you said that this isn't a good thing but may have been necessary. i agree.

am i concerned about moral hazard? a bit, but not as much as everyone else. the shareholders of these banks (including executives) were not made whole just because they didn't lose 100 cents of every dollar. the executives of the dumbest firms (Lehman, Bear Stearns, Merrill, AIG) are now jobless, and their firms are owned and run by other companies. the firms that were more prudent (JP Morgan, Goldman, Barclays) are still alive and arguably in better positions than before.

that's what we want, isn't it? the poor performers to go extinct, and the good performers to thrive?

Citi is probably the exception to the rule, but considering the black hole we were staring into this time last year, i can accept that.

Thomas Oatley said...

You miss my point about MH entirely. Not forward but past. That is because of the expectation of a bailout we had this crisis which triggered the recession to which the govt reponds with stimulus. Full cost is thus relative to what would have happened in the absence of the belief in a bailout not what it cost to prevent the crisis from being worse than It was. .

Kindred Winecoff said...

Is that an accurate description of history? actually looking at bank behaviors shows (to me) that they didn't think they were taking on excessive risk. AAA securities aren't supposed to implode like they did. Jeffrey Friedman's lead article in the new Critical Review makes this argument quite explicitly:

and now we see that AAA CDOs should've been rated BBB! banks were buying really bad stuff, but they didn't know it.

perhaps some risk-accessor at some bank should've been able to pick that out, but the evidence i've seen shows that banks were trying to substitute safe, low-yielding assets with mostly safe, somewhat-higher-yielding assets. NOT taking huge gambles with the expectation that they'd be bailed out. if they'd wanted to do that, they would've been buying BBB-rated CDOs.

unless you think the risk was intentionally mispriced by banks, which doesn't make much sense, past moral hazard doesn't travel very far as an explanation. unless i'm missing something.

The Curious Case of the Missing $100bn
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