Remember the odious, immoral, and corrupt TARP bailout?
Well, it’s becoming an issue in the 2016 presidential race, with some folks criticizing Donald Trump for siding with Bush and Obama on the issue.
I suppose I could make a snide observation about the absurdity of Trump being perceived as an anti-establishment candidate when he supported a policy that had unanimous support from political insiders.
But I would much rather focus on the policy implications. So when Neil Cavuto asked me to comment on Chris Christie’s rejection of bailouts, I took the opportunity to stress (once again) that it wasn’t a TARP-or-nothing choice and that there was a sensible, non-corrupt, way of dealing with failing financial firms. Simply stated, only bail out depositors and let bondholders and shareholders take the hit.
For the geeks who are reading this, you’ll recognize that the policy I’m advocating is often called the FDIC-resolution approach.
And it’s worth noting that this was used at the beginning of the financial crisis. As I pointed out in the discussion, two of the big financial institution that first got in trouble – WAMU and IndyMac – were liquidated.
But once Bush’s execrable Treasury Secretary, Hank Paulson, took control of the process, decisions were made to rescue the fat cats as well as the depositors.
The bottom line is that a lot of establishment figures, including GOPers like Dick Cheney and Mitt Romney, argue that TARP was necessary because the financial system needed to be recapitalized.
Yet that’s also what happens with the FDIC-resolution approach. The only real difference is whether financial institutions should be rescued along with depositors.
Well, my view is that capitalism without bankruptcy is like religion without hell.
P.S. The other guest in the interview made a very good point about America becoming “bailout nation.” I fully agree. To the extent that we have private profits and socialized losses, we’ll have bigger and bigger problems with moral hazard. After all, if you’re in Las Vegas and someone else is covering your losses, why not make high-risk/high-reward bets.
P.P.S. If anyone cares, my driveway is finally clear. A special thanks to the family next door. Not only were they smarter than me (as I wrote yesterday, they parked their cars near the end of their driveway), they’re also nicer than me. They came over and helped me finish when they were done!
Actually, I like to think I’d be equally thoughtful. I’ll have to look for a chance to repay their good deed.
By the way, I should add that the father next door works for a social conservative organization, which is one more piece of evidence for my view that so-cons and libertarians should be allies.
Tim Carney explains that natural alliance much better.
P.P.P.S. In hopes of convincing some of my leftist friends, I can’t resist making one final point.
When government gets to pick winners and losers, it’s highly probable that those who get the handouts, bailouts, and subsidies will be rich, powerful, and politically connected. Heck, just think of the Ex-Im Bank.
As noted by my former colleague, Will Wilkinson, “…the more power the government has to pick winners and losers, the more power rich people will have relative to poor people.”
I realize that statists won’t agree with me that it’s wrong for the federal government to redistribute from rich to poor. But I hope they’ll be on my side in fighting against redistribution from poor to rich!
[…] the past, I opposed the TARP bailout and the Dodd-Frank regulatory expansion, both of which were supported by the big players on Wall […]
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[…] libertarian, I then took the opportunity to condemn various forms of cronyism (such as the corrupt TARP bailout) that transfer unearned money into the pockets of undeserving rich […]
[…] had plenty of bad votes, including the horribly corrupt TARP bailout. And he routinely supported many other elements of George W. Bush’s big-government […]
[…] I would amend the joke by removing “bipartisan.” As we saw with TARP, or the budget deal earlier this year, it’s almost always bad news for taxpayers when the […]
[…] specializes in this kind of cronyism. The Export-Import Bank, ethanol handouts, TARP, and Obamacare bailouts for big insurance firms are a few of my least-favorite […]
[…] specializes in this kind of cronyism. The Export-Import Bank, ethanol handouts, TARP, and Obamacare bailouts for big insurance firms are a few of my least-favorite […]
[…] where was Ms. Marcus when Bush was pushing the TARP bailout through Congress? Where was she when Obama was advocating for his faux stimulus? Or the Obamacare […]
[…] where was Ms. Marcus when Bush was pushing the TARP bailout through Congress? Where was she when Obama was advocating for his faux stimulus? Or the Obamacare […]
[…] think the TARP bailout was the low point of the Bush years, though he also deserves criticism for big spending hikes […]
[…] financial bailouts in the past 30 years, the savings & loan bailout in the late 1980s and the TARP bailout at the end of last decade. Those bailouts created big one-time expenses, followed by an influx of […]
[…] amazing, does he not know that government policies such as Fannie Mae/Freddie Mac subsidies and TARP bailouts are what creates the heads-I-win, tails-you-lose […]
[…] amazing, does he not know that government policies such as Fannie Mae/Freddie Mac subsidies and TARP bailouts are what creates the heads-I-win, tails-you-lose […]
[…] libertarians are first in line to object when big companies lobby for bailouts, subsidies, and protectionism, the answer is obviously yes. Libertarians opposed Dodd-Frank, unlike […]
[…] big corporations lobbying for bad policies such as the Export-Import Bank, Dodd-Frank, Obamacare, bailouts, and the green-energy […]
[…] big corporations lobbying for bad policies such as the Export-Import Bank, Dodd-Frank, Obamacare, bailouts, and the green-energy […]
[…] is that cronyism is a bad idea, period. Cronyism is also bad in agriculture. It’s bad in finance. It’s bad in the tax code. It’s bad in energy. It’s bad […]
[…] (even if it should have happened using the “FDIC-resolution approach” rather than via corrupt bailouts), but that’s a completely separate issue from whether Keynesian monetary policy was either […]
[…] (even if it should have happened using the “FDIC-resolution approach” rather than via corrupt bailouts), but that’s a completely separate issue from whether Keynesian monetary policy was either […]
[…] Rich people deserve their money if they earn it in the marketplace. But if they get rich via TARP bailouts, Ex-Im Bank subsidies, protectionist barriers, green-energy boondoggles, or some other form of […]
[…] issue of liberty vs. government, I’ve specifically criticized his views on protectionism, on bailouts, on entitlements, monetary policy, tax policy, and (just yesterday) distorting tax […]
[…] the rich in the red zone are the cronyists who get Ex-Im subsidies, the Wall Street crowd that fed at the TARP trough, and other well-connected folks (like Warren Buffett) who use government coercion to line their […]
[…] Financial markets are imperfect, of course, but they’re only evil when investors and institutions want private profits and socialized […]
[…] the rich in the red zone are the cronyists who get Ex-Im subsidies, the Wall Street crowd that fed at the TARP trough, and other well-connected folks (like Warren Buffett) who use government coercion to line their […]
[…] the rich in the red zone are the cronyists who get Ex-Im subsidies, the Wall Street crowd that fed at the TARP trough, and other well-connected folks (like Warren Buffett) who use government coercion to line their […]
[…] the rich in the red zone are the cronyists who get Ex-Im subsidies, the Wall Street crowd that fed at the TARP trough, and other well-connected folks (like Warren Buffett) who use government coercion to line their […]
Dan – I’ve got a snowblower that would have cleared that in…oh…about two hours I suppose…maybe less.
Good article except. Social conservatives are by definition statists, and among the worst in my opinion. I don’t need anyone pushing their religion or personal biases on me. I am for legalizing freedom (i.e. victimless crimes) and if you are not, you are not much of a libertarian, but a conservative in disguise.
Richard Hencke
On Mon, Jan 25, 2016 at 9:32 AM, International Liberty wrote:
> Dan Mitchell posted: “Remember the odious, immoral, and corrupt TARP > bailout? Well, it’s becoming an issue in the 2016 presidential race, with > some folks criticizing Donald Trump for siding with Bush and Obama on the > issue. I suppose I could make a snide observation abou” >
[…] A final snow update. Since my neighbors were kind enough to help me finish my driveway yesterday, I was inspired to “pay it forward” by helping to clear an older couple’s driveway this […]
[…] « Trump Is Wrong on TARP (like Romney, McCain, Bush, and the Rest of the Establishment) […]
this is interesting…. on Cruz vs Trump… seems Cruz frightens the establishment… big time…
lions tigers and bears… oh my!
“Five reasons Ted Cruz is even more dangerous than Donald Trump:”
by Robert Reich:
1. He’s more fanatical. Trump is a bully and bigot but doesn’t hew to any sharp ideological line. Cruz is a fierce ideologue: He denies the existence of man-made climate change, rejects same-sex marriage, wants to abolish the Internal Revenue Service, believes the Second Amendment guarantees everyone a right to guns, doesn’t believe in a constitutional divide between church and state, favors the death penalty, opposes international agreements, embraces a confrontational foreign policy, rejects immigration reform, demands the repeal of “every blessed word of Obamacare” and takes a strict “originalist” view of the meaning of the Constitution.
http://www.truthdig.com/report/item/five_reasons_ted_cruz_is_even_more_dangerous_than_donald_trump_20160124
trump is the consummate crony capitalist… for over 50 years he has been schmoozing establishment politicians… pursuing personal enrichment… favoritism… cronyism… eminent domain… subsidies… trump has been feeding at the public trough… and there is no reason to believe his character has changed… if he were president… he would embrace the establishment principals that have made his vast fortune… dare I say it… he has contributed mightily to the perversion of our system… and now… anger and stupidity could well make him president of the United States…
only in America…
One more important word on lost growth. Suppression of growth by 1.5% ( say from a U.S. historical trendline 3.5% down to 2%) for a decade means that we are today 16% poorer than we would otherwise be.
But the calamity that voter-lemmings fail to see, is that, even if we were to return to normal US growth (virtually impossible since we are permanently and irreversibly Europeanizing but that’s another topic) that 16% loss is permanent. In another 10-20-30 years we will still be 16% poorer than we would have otherwise been. Lost growth is lost forever. Our children will be 16% poorer than they would otherwise have been throughout their lives. So our grandchildren, our great grandchildren, onto perpetuity.
Such is the nature of growth. “It’s a geometric series, stupid!” That would be a campaign slogan worthwhile of intelligent human beings. Not lemmings.
Convince the voter-lemming to reject TARP? How on earth?
The voter-lemming did not accept minor corrections along the course, as easy money inflated housing prices, restrictive zoning inflated housing prices, and government subsidies added another counterbalancing housing financing subsidy distortion, … so that every voter lemmings could now afford the house that his easy money and restrictive green smart (no)growth made expensive — and be in debt all his life, albeit at a low interest rate (if the plan pans through).
So, how can the same voter lemmings who did not accept removal of distortions when it was relatively easy, accept the correctional (but cathartic) pain of throwing entire corporations to FDIC recycling?
None of that. The voter-lemming would rather correct the situation by leveraging the distortion even more. The river has no outlet, but another few feet of sandbags on the dam will fix things for now. It will not end well.
I wish a decade or so of subpar growth (i.e. just a few trillion in permanently lost output) was all we have to pay for this distortion,… but I’m afraid there is more to this bill to be paid, and it may come due suddenly.
Even occasional and partial subsidy of losses completely changes the situation, incentives behavior and distortion.
Eg. if someone subsidized even a small portion of my losses, I’d likely spend my time gambling in Vegas.
Take roulette. The long term statistical equilibrium for unsubsidized loss is 2/36=5.5% of what you bet (the two zeros). So if someone subsidized a mere 7% of my losses then I’d suddenly have a statistical advantage, a positive expected value. At a systemic 1.5% statistical advantage I would not have to play long. I’d be a multimillionaire in a couple of weeks.
So with bailouts. Even partial and occasional subsidy of losses turns the equation (and behavior) upside down.
Sadly, when distortion causes crisis, voter lemmings demand more action. The vicious cycle closes.
[…] Reposted from International Liberty […]