It seems that Timothy Geithner is going around patting himself on the back because TARP ended up bring in more money than it put out. Thankfully, Dean Baker is out beating down this ridiculous notion, The Profit on the TARP and Bernie Madoff. He provided a great example of how the federal government could have done the same thing for Bernie Madoff that would have saved his business and “made” the government money. He considers the issue, “The question is whether an important public purpose was served by rescuing the Wall Street banks from their own greed.” He doesn’t see one.
There is an even more basic consideration. Geithner is just looking at how much money it cost the government to borrow the money and comparing it to the amount of interest that the banks paid. That’s a ridiculous way to look at it. To begin with, the government could borrow for so little money because interest rates were really low. And interest rates were really low because the economy was terrible. And the economy was terrible because the banks destroyed it. Something is very wrong with that kind of logic.
The other issue is that the government doesn’t work for free. Timothy Geithner and a bunch of other people and institutions had to be paid. There is government overhead for all of this stuff. Why isn’t all of this taken into account of the costs to the government? Because the government would have to pay it anyway? That’s not how a private business would look at it in its accounting. So why should the banks get off in this way. Clearly, this is just a way for Geithner to argue (as if it were necessary) that it is always a great idea to shovel cash to the rich because it is always a good investment.
But there is a far easier, if less quantitative way of thinking about this. The government can only do so many things: it has limited resources. So there is an opportunity cost of doing any given thing. The question is never whether bailing out the banks paid for itself in the long run. The question is whether that was a better use for the money than other things. Personally, I have no doubt that spending that money on improving schools and infrastructure would have been better. But for obvious reasons, people never bring this up. Because helping out the rich is always the most important thing to do because the one thing we really believe here in America is that the rich can never, ever be allowed to fail.
Baker did mention in passing the “Second Great Depression scare story.” That’s the one where we are all supposed to deliver gold, frankincense, and myrrh to the feet of Timothy Geithner for saving us from the calamity that would have befallen us if the big banks hadn’t been save. In other places, Baker has mentioned a number of things that could have been done. But in this article, he just mentioned the most obvious: the government could have spent money. That is, after all, what the government did do. But if it had been regular spending, it could have been used on good things instead of the bonuses of top management at banks.