Bailout: Best Program Evaaah?

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Zachary Roth

As unpopular government initiatives go, the financial bailout would seem to rank somewhere up there between Prohibition and the Stamp Act.

In the political sphere -- and not just in far-right circles -- it's something close to a consensus view that the bailout was a corrupt giveaway of taxpayers dollars to Wall Street that will leave us deep in the red for decades. As Rep. Brad Sherman (D-CA) put it after TARP passed: "Only two things are certain: the bill will provide hundreds of billions of dollars to investors who made bad decisions and Wall Street executives; and our children and grandchildren will now face a national debt that is hundreds of billions of dollars higher." Sen. Bob Bennett (R-UT) was just ousted by state Republicans, who cited his vote for the TARP and derisively nicknamed him "Bailout Bob." And Sen. John McCain (R-AZ) has taken to claiming, implausibly, that he only supported the bailout because he was misled about the fact that it was targeted at the financial sector (seriously).

But now, 19 months after Congress voted to spend $700 billion on the Troubled Asset Relief Program, we're starting to get a long-term sense of the effort's true cost, and its effect. And when you look at the amount of money that the government now stands to make back -- not to mention the widespread expert view that the bailout succeeded in its prime purpose of stabilizing the economy -- it could just be that we've been able to rescue our economy from the brink of a depression for a relatively low price. And so, an unlikely question arises: Was the bailout, far from being a disastrous, dishonest failure, really more like one of the most successful programs ever?

We still can't know what the final price-tag for the bailout -- by which we mean not just the Treasury's TARP program for banks, but also the efforts to prop up Fannie and Freddie and the automakers, and additional spending programs by the Federal Reserve -- will come out to. But it now seems clear that that $700 billion figure cited as the cost of the TARP alone was way too high. Pro Publica records that of $536.3 billion that the Treasury has dispersed to date on the TARP and the programs to rescue Fannie and Freddie, $216.8 billion has already been returned, either through banks paying the money back, or through dividends generated. That still leaves $319.5 billion outstanding, but most estimates are that as the health of the financial sector continues to improve, much of that figure too will return to the government's coffers. Indeed, last month, the Treasury Department offered an estimate of its own. The TARP program will end costing about $117 billion, Tim Geithner forecast. Help for Fannie and Freddie will likely add about $85 billion more. But those losses will be partially offset by expected gains of $115 billion from the Fed's programs. That comes out to a final cost to taxpayers of $87 billion.

In one illustration of how things are going lately, Treasury announced late last month that it planned to sell off its shares of Citigroup, likely turning a profit. It bought the shares for $3.25 a piece, and they're now valued at about $4.60.

Geithner may have reason to paint a rosy picture, and some observers say his tally left out some of the bailout's more indirect costs. The Congressional Budget Office last year put the cost at $250 billion. But as a price for preventing the human misery that a full-scale economic collapse would have caused, even that number might be a bargain.

And, lest we forget, that was the bailout's purpose. It's hard to remember now, but in the fall of 2008, there was a genuine concern that the entire financial sector could collapse, plunging us into a second Great Depression.

That hasn't happened, and experts of various stripes -- even many who initially were doubtful -- credit the bailout for that. Barry Eichengreen, a professor of political science and economics at UC Berkeley, and a left-leaning foe of the big banks, wrote earlier this year that the TARP "enabled the banks to earn their way back to solvency," and "prevented the financial system from falling off a cliff." And Tyler Cowen, a professor of economics at George Mason and a libertarian, also was skeptical at first but has conceded that "yes, the bailouts were a good idea," adding that without them, "we would have had many more failed banks, very strong deflationary pressures, a stronger seize-up in credit markets than what we had, and a climate of sheer political and economic panic."

None of this is to say that we don't have every right to be angry about the events of the last two years. Irresponsible bankers, after years of lax government regulation, came close to tanking the American economy, and had to be rescued by ordinary Americans, who meanwhile took the brunt of the recession that the financial crisis ushered in. And now those same bankers -- their sway in Washington hardly diminished -- are working to water down efforts to make sure this never happens again.

But there were no perfect options back in the fall of 2008. And if at that time we'd been offered a way to stabilize the economy for what could be a fraction of the cost originally contemplated, we'd likely have taken that deal in a heartbeat.

For that reality to show up in our political discourse, though, may take a while longer.

Additional reporting by Ben Frumin

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