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Steve Rattner's Tarp Mania

Steven Rattner
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Steven Rattner

Steven Rattner, the former Obama administration point man for the bailout of Chrysler and General Motors, launches into a sort of mania on the opinion page of theNew York Times today.

He complains that Republicans don't have economic plans so much as "shadowy outlines" of economic plans. Peering through the shadows, he detects "extreme views," "crazy" ideas, and (again) “extreme views.”

There is no analysis of the Republican positions. In the place of analysis there is the repeated assertion that the positions would lead to economic ruin. Not raising the debt ceiling would “tip the economy into an unending downward spiral.” Failure to pass Tarp would have meant “we would not have a functioning economy today.” Eliminating the Federal Reserve “would plunge the country back into an oscillating 19th-century world of panics and busts.”

It is clear that Rattner views actually debating the positions of the Republican hopefuls as ridiculous because, as he sees it, there is nothing to debate about. In fact, it seems to bother him that he and the politicians he supports are forced to co-exist with Republicans at all.

But these aren’t ridiculous or even extreme positions. Let’s just take one example: what Rattner terms “the financial rescue.” Is it really more “extreme” to say that without the rescue “we would not have a functioning economy today?”

That’s become a kind of mantra for a certain sort of person. But it is wholly without evidentiary support. Even as a matter of estimation, it is highly implausible.

Let’s recall that opposition to the Troubled Asset Relief Program was bipartisan. The first time it came up for a vote in the House, it failed with 95 Democratic votes against it, and 133 Republican votes against. It passed because 32 Democrats and 26 Republicans changed their votes. Refusing to support it was, at least at the time, not an extreme position.

The Troubled Asset Relief Program that lawmakers believed they were voting for turned out not to be necessary at all. Treasury Secretary Hank Paulson and others told lawmakers that it was absolutely necessary to have the government purchase soured mortgage securities from banks. We actually had a debate about whether the outright purchase was necessary, or whether some sort of insurance for assets would suffice.

The funds appropriated for the purchase of buying troubled assets, of course, were never used for this purpose. Instead, Secretary Paulson used the funds to buy preferred stock he forced the nine largest banks to issue to the Treasury. After that the program was expanded to include many other financial institutions and—once Congress rejected a bailout for the auto-industry—to bailout Chrysler and General Motors, both of whom went bankrupt anyway.

But if TARP wasn’t needed to accomplish its original purpose—buying assets—was it necessary for us to ensure that we have a “functioning economy.” Almost certainly not. Without a doubt there would have been financial companies failing without TARP but the market is quite capable of recovering from the failures of large financial institutions. The immediate economic dislocations—including the unemployment rate—may have been worse without TARP. But there is no reason to believe the economy would have ceased to function.

Even after TARP was used to recapitalize banks, several non-extreme lawmakers opposed the second round of TARP funding in January of 2009.

Democratic Senators Evan Bayh of Indiana, Maria Cantwell of Washington, Byron Dorgan of North Dakota, Russ Feingold of Wisconsin, Blanche Lincoln of Arkansas, Ben Nelson of Nebraska, Jeanne Shaheen of New Hampshire and Ron Wyden of Oregon all voted for a motion that would have denied the Obama administration $350 billion of the TARP funds. (Independent Bernie Sanders of Vermont, who may actually qualify as an extremist, also voted for cutting off the TARP funds.)

As I said, there’s good reason to think that TARP actually did ameliorate the economic woes of 2009 and 2010. But arguing this point requires distinctions that Rattner is unwilling to make.

What’s more, debating on these terms would likely lead to questions about whether the short-term fix was worth the long-term costs of the financial rescue, which are increasingly evident as we teeter on the edge of a new recession. Far easier to simply state that the economy would have ceased to function if the bailout proponents hadn’t gotten their way.

If you want to understand why debates about things such as the debt ceiling seem to have become so bitter, Rattner’s refusal to contemplate the legitimacy of opposition to the Obama administration’s policies are a good place to start. When you view your opponents as advocates of surefire economic ruin, it’s hard to have a civil discussion with them.

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