2 Views, 1 Magazine -- on the Bailout

I was catching up on some magazines tonight and was really surprised to see 2 diametrically opposed views on the banks and the bailout. Fittingly, one story ran in the front of the book and the other at the end.

The first article is an opinion piece by Allen Sloan who -- I think rightly so -- points out that "...before you accept the Street's version of events, recall that you didn't hear complaints about "socialism" when the government bailed out creditors of Bear Stearns and AIG, and let Goldman Sachs and Morgan Stanley become bank companies so that they could borrow hugely -- and cheaply -- from the Fed." Sloan does add that perhaps there's more to the banks desire to pay back the TARP funds may not be just to get out of the political spotlight, but also to buy back the warrants that the Treasury got for lending the funds before they become worth too much. Basically they took the money when they needed it and want to give it back before the value of the warrants rise too high and the American people get their fair return. Nice work guys.

But there is another side of the story that starts 64 pages later that tells the Banks' side of the story. Basically it's the banks crying about how they were vilified by the press and the public as they were taken through the bailout process and the feeling that they were mistreated by the government -- both in terms of changing of the deal as the process continued and politicians demonizing the banks in public sessions to score political points.

Through all the complaining there was a really good paragraph towards the end:

So has TARP done its job? "It was one of the largest government appropriations in history," says Thomas Chen, CEO of the investment bank Piper Jaffray. "And a mere seven months later we're letting capital be returned on the basis that the problem is fixed. So you have to ask: (1) Has it all been fixed?, or (2) Was it necessary in the first place?" Chen believes the program had a short-term calming effect on the economy -- more than a financial effect. Says Thomas Nides, Morgan Stanley's chief administrative officer: "The original concept was to accomplish one thing: to stop us from going off the cliff, to send a clear message that the government was not going to let the system collapse. For that I give them an A+."

I think Chen and Nides have this about right. For all the flaws of TARP, I think it did what it needed to do -- it averted an all out crisis.

One final thought on the 2 articles. Which view is more right? Are the banks having a bout of selective memory? I think so. Mostly because of the adage "Follow the money". Paulson, Geithner and Obama aren't going to get rich off TARP. But the bankers have not only kept their jobs, but it seems as if they may prosper greatly as the government takes on all the responsibility for their mistakes in the form of toxic assets, and through access of cheap money, leaving the bankers to make boatloads of money. I think the bankers doth protest too much.

Barney Frank and the Miss America Pageant?

One of the things I look forward to in the Saturday Boston Globe is the political cartoons and quotes of the week on the Op-Ed page. I usually get a couple of good chuckles out of it and this week was no exception.

"People aren't good at doing things they dislike. Like asking me to judge the Miss America contest -- if your heart's not in it, you don't do a very good job."

Representative BARNEY FRANK of Massachusettes, on persuading Republicans to bail out the economy.

It's a funny quote considering that Rep. Frank is a well known homosexual.

But it's also disappointing that this is reality. It's amazing to me that the only time Republicans are behind a bailout is when the company is big enough to line their pockets for a re-election bid -- the Chrysler bailout under Reagan, tax breaks to oil companies and the Fed's recent actions for Bear Stearns. But when a bill is proposed to provide $500M in funds to keep people in their houses during the current mortgage credit collapse Republicans don't want to help. They don't want to "reward" banks for making bad credit decisions, sidestepping the fact that the real beneficiaries are the people who are currently living in those houses. What's worse is that the opponents of the bill suffer from amnesia when they make their arguments. The bill clearly states that the benefits only accrue to people who are already living in the houses, preventing others from literally cashing in on others' misfortunes for their own gain.

$1200 tax rebates are nice, but in a situation where we spend $4B a day to pay for the wars in Afghanistan and Iraq, $500M during the course of a year to help keep people in their homes and steady a precipitously declining housing market seems like a more than reasonable way to spend our taxpayers' money. Perhaps the people who get the rebates will then use them to keep their mortgages current and fill up their gas tanks instead of blowing the money on rent and moving expenses.