A quick note on a common calculation that is less bullish than it sounds. Here’s an example from a piece by Robert Samuelson this morning reviewing Tim Geithner’s new book:
…the government’s financial rescues made money. Most banks repaid with interest the amounts they received; many other subsidies have been recovered (or will be) with interest. Through 2013, these programs were projected to be $166 billion in the black, Geithner says.
It is a very good thing that beneficiaries of the bank bailouts more than repaid the government for the resources they received from the TARP, and in other places, I’ve pointed out that by reasonable metrics, the TARP worked, and did so for a lot less than most people think.
But these government profit calculations are misguided because they fail to net out the damage done by the crisis the banks helped cause.
More than two years ago, I wrote:
Saying that TARP worked — and that it might even ultimately turn a profit for the taxpayer — is not to say that stabilizing the financial system prevented the pain of the Great Recession. Millions of Americans continue to pay the price in long-term unemployment. Millions more have lost or will lose homes to foreclosure, and trillions of dollars in housing wealth have evaporated. The U.S. gross domestic product remains about $900 billion below its potential level. Unemployment remains stubbornly high.
The government’s financial-market interventions made that pain less deep, but they did not prevent it, and any potential gains from these programs pale next to the damage done by the high-finance-inflated bubble that caused the sharp downturn from which we’re still recovering.
The gap in potential GDP may be closer to $850 billion now. Otherwise, the critique still holds.