May 21, 2018
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Credit Where Credit Is Due

Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and Securities and Exchange Commission Chair Mary Schapiro testify before the House Financial Services Committee regarding financial reform on Capitol Hill in Washington, Tuesday, April 20, 2010.


The news that the federal government’s $245 billion bank bailout has been 99 percent repaid (about $244 billion, plus $20 billion in interest) closes one chapter in the embarrassing saga of the great recession of 2008. It’s embarrassing because the recession was easily avoidable, and because the U.S. Treasury should not have been called upon to rescue the very institutions that helped create the near-collapse.

Only through vigilance by Congress and the president will such a scenario be avoided in the future. Financial regulations must be revisited regularly to ensure they are up to the task of being a bulwark against a continually evolving set of moneymaking schemes.

The Troubled Asset Relief Program was launched in the waning days of the Bush administration, and there is ample evidence to suggest that had the timing been different, President Barack Obama would have responded very much as his predecessor did in the face of warnings that the economy was on the brink of collapse.

TARP was originally understood as resulting in a hit to taxpayers, albeit one that had to be absorbed. That it has turned out otherwise should not encourage the federal government to undertake such moves again if needed to avoid an economic collapse. Loans or bailouts of this magnitude should be few and far between. A way to ensure that is to keep financial institutions that are “too big to fail” on a short leash.

Sadly, it is difficult to include a moral component in such federal intervention. Many Americans would have gleefully watched the big banks that caused the recession with their reckless loan policies and exotic investment instruments fall to their knees. This is akin to freezing to death from refusing to buy heating oil as a protest against high prices. Still, a component of the bailout that limited CEO bonuses would have been welcomed.

But the grumbling about the bailout does raise an important question. If the shameless big banks were saved, presumably for the greater good, what other $245 billion loans could be made to worthy endeavors? Could such loans be sold to the public for housing, alternative energy technology or business development?

As distasteful as TARP was to people, the loans were granted to well-established businesses and backed by stock the U.S. Treasury could hold. In a sense, these were low-risk loans. If that same level of confidence could be achieved for considering loans to build something new — rather than avoid financial catastrophe — maybe the public would accept such pump-priming loans.

The reality, though, is that the ventures that have the potential to remake the U.S. economy for the better are far riskier than bailing out AIG. Which is why the American Recovery and Reinvestment Act remains so unpopular.

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