Posted 4/19/2010 12:00 am
Updated 2 years ago
Would the global economy have entered an annihilating black hole had the U.S. government - meaning taxpayers - failed to prop up the financial system in the fall of 2008? We can't say.
We can't say based on the principle that it's impossible to prove a negative, though that doesn't stop some people.
But we do remember the big black newspaper headlines in September and October 2008. A sample from just a few days: "U.S. Gives Banks Urgent Warning to Solve Crisis," Sept. 12, 2008, The New York Times; "Dow sheds 504 in biggest point plunge since 9/11," Sept. 16, 2008, Arkansas Democrat-Gazette; "Markets Drop Around the World on Turmoil, Fears About Growth," Sept. 17, 2008, the Wall Street Journal.
It was so bad that the then-warring presidential candidates, Sens. John McCain and Barack Obama, both left the campaign trail and hied themselves to Washington to vote for the wildly unpopular financial bailout plan.
The bailout remains wildly unpopular, with now-President Obama recently comparing that lack of popularity to a "root canal." Those seeking to unseat Arkansas Sen. Blanche Lincoln are using the vote on the Troubled Asset Relief Program, just one aspect of the government's intervention on behalf of the financial system, as a political bludgeon.
Lt. Gov. Bill Halter, working to wrest the Democratic nomination from Lincoln, has assailed her for voting for TARP. State Sen. Gilbert Baker, one of those dueling Rep. John Boozman for the GOP nod in the Senate race, also has criticized Boozman for his vote for the bailout. Both Lincoln and Boozman stand by their votes. "If we had not started on that road, we probably would have seen a much more devastating crisis," Lincoln said. Boozman called it "the right thing to do based on the circumstances."
So what if the bailout has actually been successful?
The WSJ, not exactly a bastion of left-wing thought, last week published an article stating that the cost of the government rescue appears to be less than expected: "As momentum grows at companies that looked like zombies just a few months ago to repay taxpayers for lifelines they got during the financial crisis, the projected cost of the bailout is shrinking to just a fraction of previous estimates."
Reporter Deborah Solomon's story included a number of optimistic nuggets:
- Although the Congressional Budget Office and the Office of Management & Budget estimated a year ago that "the overall bailout would cost more than $250 billion," the Treasury Department puts the cost at closer to $89 billion. That would be, as a percentage of GDP, less than the cost of the savings and loan crisis of the late 1980s.
- The infamous too-big-to-fail American International Group Inc., of which the government now owns 80 percent, appears headed to repay its $51 billion loan from the Fed.
- Banks so far have repaid $169 billion of the $245 billion government injection.
- The federal government is moving to sells its - our - share in Citigroup Inc. Selling now would earn us a profit of about $11 billion, in addition to the $8.1 billion the Treasury has collected in interest and fees.
But the article also contained two honking caveats: Fannie Mae and Freddie Mac, which got $125.9 billion in direct aid, are likely to be dependants of the taxpayers for years. And that $89 billion bailout cost estimate? It doesn't include Fannie and Freddie because, "for budgeting purposes," they're considered private enterprises. Heavy sigh.
ProPublica, the online nonprofit newsroom that just last week won a Pulitzer Prize for investigative reporting, has a useful Bailout Guide on its Web site. This guide puts the total outflow - funds spent, invested or lent - at $514 billion; the total inflow - money returned to the Treasury in the form of refunds or revenue - stands at $207.3 billion. Basic math skills tell us that we're still out $306.7 billion on the bailout. Repeat heavy sigh.
Could the Great Recession, however, have been worse, could it have been the apocalyptic global economic meltdown many feared? Heck, yes. But the world being an unpredictable place, we face that possibility every day. One nuclear catastrophe, one massive volcanic eruption, one giant meteor landing smack-dab in Stuttgart, and we're all dust - forget functioning financial systems.
More prosaically, a national jobless rate of 9.7 percent is not acceptable. Worse than unacceptable, it's tragic for those without jobs. Vaporized 401(k)s and battered pension funds have caused real pain, although it should also be noted that the Dow Jones Industrial Average has blown past 11,000 again and corporate earnings reports have been encouraging.
Still, we're left with the question: What if Congress had done nothing? This subject will be debated for decades, just as, 80 years on, the causes and cures of the Great Depression continue to provoke controversy.
As for ourselves, we'll take the good news, incremental as it is, where we can find it. And, borrowing from a colleague quick with the quip, we'll go this far: Do you still use money? Thank the bailout.