Samuelson Says Bailout Unpopular, But Successful
NEAL CONAN, host:
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One writer recently described TARP, the Troubled Asset Relief Program, as the best large federal program to be despised by the public, first under President Bush, later under President Obama. TARP provided $700 billion to bail out Wall Street banks, huge insurance companies, not to mention Chrysler and GM.
America, it's fair to say, was and is outraged. In a column that ran in Newsweek and The Washington Post, Robert Samuelson argues that TARP has been an almost unqualified success. So how did the government bailout affect you? Our phone number: 800-989-8255. Email: firstname.lastname@example.org. You can also join the conversation on our website. That's at npr.org. Click on TALK OF THE NATION.
And Robert Samuelson joins us now from his office here in Washington.
Nice to have you back with us.
Mr. ROBERT SAMUELSON (Columnist, Newsweek, The Washington Post): Hi, Neal. How are you doing?
CONAN: And one of the first things you point out, yes, 700 billion, but not all of that was used, and much of what was used is coming back.
Mr. SAMUELSON: Right. At its peak, TARP dispersed about $410 or $411 billion, which is an awful lot of money, of course. But they've been repaid a substantial amount of that already. And the Congressional Budget Office, which initially predicted a loss of around $350 billion, its latest estimate is about $19 billion. So the net costs for this are going to be substantially less than most people think.
And I would argue that the benefits - it succeeded in its main purpose, which was calming financial markets and restoring some sort of stability, which allowed an economic recovery to begin. It didn't stimulate the economic recovery, but it created the conditions in which a recovery was possible, and in which the continuous downward spiral of the real economy halted.
CONAN: Nineteen billion dollars is still a lot of money to spend for confidence.
Mr. SAMUELSON: It's a lot of money to spend, but if you consider the alternative, which is that unemployment - which got up to just about a little over 10 percent - might have gone to 12 or 13 or, who knows, even higher, and that the recession, which was brutal, would have continued longer than it actually did, and that the recovery, whenever it started, would have been later and probably weaker. You have to say that if that's what we got - if we got that better situation for our $19 billion, we probably got our money's worth.
The other point to be noted is it's quite conceivable the 19 billion will be revised down again. Really, since the beginning of this program, the estimated loses have, with some exceptions, continually gone down. So it's conceivable. I don't say it's going to happen, but it's conceivable that this program would break even or even make a little money.
CONAN: Other people complain that the money used to bailout the car companies in particular, Chrysler and General Motors, this is - well, this is rank socialism, the government buying two of the largest corporations in the United States.
Mr. SAMUELSON: Well, I think what's interesting about TARP is that it's detested by everybody, regardless of party affiliation or ideological inclination. The conservatives hate it because it's a violation of free market economics. The liberals hate it because it was bailing out the rich and the powerful.
What you have to ask yourself is: What should the government do in a situation when there really is a financial panic - not a small, little bubble bursting, but a large panic in which everybody is running for the doors at the same time? I'm basically a free-market person. But I don't think the free market ought to be allowed to destroy the economy and the nation's social fabric. I have been against corporate bailouts for most of my journalistic career, but in this case, I think rescuing GM and Chrysler was justified.
In part, they were mismanaged and they didn't deserve to be rescued. But the extremity of their financial condition was really a reflection of the dramatic decline in the economy. When you had auto sales going from 16 or 17 million units a year in the middle of the first decade of the century down to less than 10 million units, that's a complete collapse. No one really anticipated it. And so they had all they had all these fixed costs which had to be met, and they basically weren't selling any cars or trucks to meet them.
So in that situation it seems to me it was justifiable to rescue these companies and to prevent what would have been a huge surge in unemployment if they had been allowed to completely collapse. I don't know whether the increase in unemployment would have been 250,000 or 1.2 million. But it would have been very substantial, and it would have made it much more difficult for us to get out of the hole that we're already in.
CONAN: There is also a fundamental element of fairness that people object to. They bailed out Wall Street. They did not bail out Main Street. What about my business? What about my farm? What about all the people I know who are out of work?
Mr. SAMUELSON: Well, the answer is things would - the answer is that things would be worse if they hadn't placed a safety net under these financial firms and under GM and Chrysler. So yes, it is true that the first and the most obvious beneficiaries of this were the institutions that got protected or bailed out.
But the economy in general, which is what we mean by mainstream, was actually the ultimate beneficiary because as bad as things got, they didn't get as bad as they might have gotten.
CONAN: There were, though, failures in TARP, one of them you account for in your column. Fewer homeowners received mortgage relief than intended.
Mr. SAMUELSON: Yeah. I mean, the Obama administration initially projected that under this program the various proposals and programs that they've initiated to help homeowners that are struggling with their mortgages would help maybe three to four million homeowners.
So far that has proven to be wildly optimistic. It's roughly now 600,000, which is a large number, but it's much smaller than three million.
CONAN: We're talking with Robert Samuelson about his piece that ran in The Washington Post and Newsweek magazine in defense of TARP. 800-989-8255. Email: email@example.com.
And let's go to Jim, and Jim's with us from Southfield in Michigan.
JIM (Caller): Hi, Neal. Thank you for taking my call.
JIM: My job was directly saved by TARP because I work as a supplier of marketing research to the automobile industry. But I wanted to make the larger point that the automobile industry is a highly technical manufacturing industry, and each production job at an auto plant supports nine or 10 other jobs in the United States, including direct supplier jobs of parts, but information jobs, like what my company does, providing market research.
In other jobs in the community and in a lot of small towns in America, the automobile dealerships are, in fact, some of the largest employers in those communities and support other things like, you know, little league baseball and things like that. So the automotive community has a far-reaching reach in the nation and permeates many phases of American life.
CONAN: So Jim, can you imagine what your community there in Southfield would be like if this had not happened?
(Soundbite of laughter)
JIM: Yes. It'd be - Michigan is not in very good shape even now, and it would have been much worse.
CONAN: All right. Thanks very much for the call.
JIM: Thank you for taking my call.
CONAN: Bye-bye. And well, Robert Samuelson...
Mr. SAMUELSON: Well, my reaction is that he makes the case that I made. He made it much more eloquently and much - in greater detail. But this - the financial panic was not an ordinary economic event. In ordinary times a company that had been mismanaged, you would expect it to go out of business and either be liquidated or sold to a better owner.
But in this case, the extremity of the collapse really determined that GM and Chrysler would not be able to make it on their own. And in these circumstances, it seems to me it was entirely justifiable to save them. And as he pointed out eloquently, the consequences of not doing so would have been enormous. And if we had not done so, I think that the political backlash would have been huge.
Let's go next to Jerry. Jerry with us from San Francisco.
JERRY (Caller): Hi. Great show. So I was not directly affected by the bailout, but I'm outraged by - not by who was bailed out but by who wasn't, and that's the American people, who have been destroyed, and that, by the way, includes me and my wife, by the biggest financial fraud in the history of the financial system. None of the people have been held to account, and very few ordinary citizens, unless you happen to be employed in the automobile industry or, I guess, in investment banking, have seen anything out of it. HAMP has been a miserable failure. And the perpetrators of this fraud go unpunished and I guess that's the way it's going to be. And if anything was going to build up cynicism about our entire system of government and whether it's totally corrupt or whether it actually does work for the people, this is going to do it.
CONAN: Robert Samuelson, there's that anger.
Mr. SAMUELSON: Well, and I sympathize with that. But my reaction is things would have been worse if we hadn't done this. And sometimes you have to go after what you want in indirect ways, and the indirect way of preventing an even greater economic collapse, in this case, was to put a safety net under some of these institutions. And...
CONAN: What about Jerry's point on accountability? At least the head's of GM and Chrysler lost their jobs. Wall Street - not so much.
Mr. SAMUELSON: Well, a lot of the people in Wall Street lost their jobs as well and in some of these companies, amazingly, people had most of their savings in the stocks of the company. And companies like Lehman Brothers and Bear Stearns, the stocks were decimated.
Now, I don't - you know, I can't tell you who made out and who didn't, but if you were a mid-level manager or a bond trader at one of these companies and you had 80 or 90 or 100 percent of your life savings in the company stock, you essentially were wiped out as well.
CONAN: Jerry, I...
Mr. SAMUELSON: And on the other hand, there are an awful lot of people who survived and who are paid more than they should be, in my view. And there are other people who worked on Wall Street who got out before the crash and are extremely wealthy. And there's no doubt that there's an injustice to this.
And - but I would point out that we live in a society of laws. And so far, the authorities really have not been able to make criminal cases against people in these financial institutions who have made mistakes. There is a difference between making a mistake, even a mistake that was unethical, and breaking a law.
And in the long run, we have to go by our laws. And I would say, you know, revenge is not a legitimate aim of government policy. We ought to go after the lawbreakers and people who participated in fraud, but a lot of these people believed in their own mistakes.
In other words, a lot of these big financial institutions had huge portfolios full of this toxic junk. Well, they had huge portfolios because they didn't believe it was such junk.
CONAN: I just wanted to get a response from Jerry. Does the could have been worse argument to cut much ice with you?
JERRY: Well, that argument is fine. And in fact I mentioned to the screener, if I didn't mention it on the call, that, you know, I pretty much bought into the idea that the bailout was necessary to keep things from getting even worse. I'm fine with that.
As for Mr. Samuelson's later point, the truth is that the criminals are writing the laws through their lobbyists. They protect themselves from anything that takes away their money, and I recognize that mid-level people lost their fortunes as well.
But the people at the top, the bond traders, the CEOs, the hedge fund managers, you know, they're doing just fine, and in fact they're doing better than fine. And, you know, I just wonder, you know - sorry, I've forgotten the name of the the Dodd-Frank bill, you know, they say that essentially Wall Street got 75 percent of what they wanted in that overhaul. So I have no confidence that this won't happen again...
JERRY: ...and that the same people will be involved.
CONAN: Thanks very much for the call. Appreciate it.
CONAN: We're talking about TARP and its success. 800-989-8255. You're listening to TALK OF THE NATION from NPR News. Let's go next to Michelle. Michelle with us from San Antonio.
MICHELLE (Caller): Yes. Hi. Thanks for taking my call. I directly benefited from TARP in that the institution that I worked for received TARP funds. And I believe that that helped us in saving a lot of job cuts that it could have been a lot greater in my area. Therefore I still have a job today because of the TARP, so I'm actually thankful for the TARP that we received.
CONAN: So it - and your company did what?
MICHELLE: We received, directly received benefit of the TARP fund. My - one of the major institutions, banking institutions.
CONAN: I see. And it kept that institution afloat?
MICHELLE: Yes. And I think...
CONAN: And your job aside, Michelle, and I know that's a definite boon, did the company deserved to be kept afloat?
MICHELLE: Yes, I believe it did. I believe it did. And I think we've made some great changes and great strides since the TARP has come along, so I believe it did.
CONAN: All right. Well, thanks very much. Thanks very much for the call. And Robert Samuelson, finally one thing that others argue is a price of the bailout, of TARP, is what they call moral hazard. If companies are badly managed, they should go under.
Mr. SAMUELSON: Well, the argument about moral hazard is that if you protect companies against their losses and failures but you allow them to enjoy their profits and the success, you will encourage excessive risk-taking and we'll just have a repeat of this crisis in the future.
That's a very appealing argument, powerfully and intellectually. But I would say it really does not fit the circumstances of the situation. What happened in the financial crisis of 2008 and 2009, a lot of institutions went down. People lost a lot of money from stocks, and many of these institutions essentially went out of business. You did not know in advance which ones would survive and which ones would fail.
And so there's an enormous amount of uncertainty as to who would be saved and who wouldn't be saved and under what circumstances they'd be saved. And moreover, I would say the antipathy and hostility towards the TARP and the fact that it's shared all along the ideological spectrum raises extreme doubts as to whether or not Congress would approve bailouts in the future.
It doesn't mean that they won't, but if you are gambling in Wall Street today, you cannot be sure if they will. You certainly can't be sure. So I would say that the moral hazard argument, although superficially appealing, is wildly exaggerated.
CONAN: Robert Samuelson, thanks very much for your time.
Mr. SAMUELSON: Thank you.
CONAN: Robert Samuelson, a columnist for Newsweek and The Washington Post, the author of the "Great Inflation And Its Aftermath." His op-ed, "Why TARP Has Been A Success Story," ran in Newsweek today. There's a link to it at our website. Go to npr.org.
Tomorrow, how ordinary people can convince themselves or become convinced to commit extraordinary mass violence. David Livingstone Smith joins us to talk about his book, "Less Than Human." Join us for that.
I'm Neal Conan. It's the TALK OF THE NATION from NPR News.
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