Quote Of The Day

“The Treasury Department announced earlier today that it’s ready to sell the 18 percent of General Motors that it still owns, which is going to leave the auto bailout as a large net loser for the government unless shares suddenly skyrocket up to almost $54 a share. By contrast, the bank bailout portion of TARP has turned a profit.” — Matthew Yglesias

15 Responses to “Quote Of The Day”

  1. Jon says:

    Notice, HP, that your approach is to defend the socialism and bailouts that went to the rich, whereas the bailouts that affect the lives of the lower classes should be criticized. That fits a pattern.

    I wonder how much of the return of the stock price of banks is due to the astonishingly favorable circumstances offered by our government, probably as a result of their lobbying. What does the Fed do with interest rates? They’re through the floor. So the banks get the money at say 0.1% from the federal government. Then they loan it out to people at say 4 or 5 % (just making up numbers here, but you get the picture.) So maybe they are making 500x what it costs them. Then their stock price goes up because the money is hand over fist due to their lobbying, and they get people like you to cheer lead for them.

    Of course Bush’s legislation that prevents people from declaring bankruptcy helps them. Credit card companies have a stronger hand in preventing struggling people from discharging their loans. Then there’s the student loan policies. No matter what you can’t escape them. So when it costs 0.1% to get money and they have a guaranteed 6% coming back, yeah, they make a lot of money.

    The austerity crowd has been screaming about inflation forever. Oh no, we have to battle inflation. And they’ve gotten what they wanted. So for instance my home loan from 7 years back was 6%. Built into that interest rate is inflation. If inflation ends up being lower than expected then they end up making a killing. They get paid back in dollars worth more than they anticipated. Inflation would help me. I’d rather pay them back in dollars worth less. With these austere policies, sure, unemployment is a total disaster. Working people our out of work, so yeah, they don’t buy cars, and GM struggles. But on the plus side the banks are paid back with money worth more than expected, and so OK, their profits go up and stock value goes up.

    I know people hit so hard by the housing slump that they don’t have enough equity to refinance, so they are stuck with the same interest rate they got years back. Again, the banks are getting paid back with ENORMOUS interest that at the time was a function of an expected higher inflation rate. Huge banking profits at the expense of the people hit hardest by the destruction they caused.

    It’s not like banks operate in a free market or something. They operate totally under the control of the government, a government they control with their lobbyists. And what we’ve seen is policies from the government that lead to huge profits for them. Big surprise. Would this prove that bailouts for working people are bad and bailouts for rich bankers are good?

  2. Jon says:

    Make that 40 to 50x what it cost them.

  3. Jon,

    I was looking at this from the taxpayers perspective. Certainly a bailout that provides a profit is better for the taxpayer than one that adds to the debt, all else equal. Wouldnt you agree?

    But more importantly, I thought you supported a loose monetary policy. Not true?

  4. Lastly, a loose monetary policy should ALSO have helped the automakers. Cheaper loans, etc to buy cars.

  5. Jon says:

    I do support a loose monetary policy and that’s obviously good for banks, but what I also support is stimulus and policies that lead to inflation. Inflation helps debtors and harms creditors. Banks are creditors. So in pursuing a no stimulus, low federal funds rate policy we’ve pursued a policy that couldn’t be better for bankers. They get the combined low federal funds rate AND low inflation. They basically win coming and going. So yeah, their stock price would be expected to go up. They feed like crazy at the public trough, so their profits are high.

    Take for example something brought up by Elizabeth Warren recently. Why is it that banks get money from the government at 0.75% and then they turn around and loan it to students at 6.8%? That’s just shoveling money from the taxpayer, who provides the initial money, into the pockets of bankers. Why not just give the money to students at 0.75%? Instead of giving gifts to bankers who already have mountains of money, why not give it to students, many of whom can’t find jobs in their related fields upon graduating and struggle to send all this money to the rich bankers with interest?


    Bankers have good lobbyists, so our government pursues policies that funnel astonishing amounts of money into their pockets. Working people don’t get similar support, so people don’t buy cars and GM struggles. This doesn’t mean the bank bail outs did more good than the GM bail out. The GM bail out may have done more good and the bankers are simply robbing the tax payers by means other than what is reflected in the sale price of the bank stock.

  6. Loose policy also, should, produce inflation. What we need is MORE loose monetary than…

  7. Jon says:

    Krugman has been talking for a long time about how loose monetary alone is not enough to produce inflation, and he’s been predicting the whole time that we would not have inflation. In fact I won a bet with a friend. Took a year to see who would win, but he predicted high inflation and I picked low based on all these “printing money” fears. I’m not smart, I just have seen the track record. The right wing was saying what you say here. These low federal funds rates will produce sky high inflation. But they’re always wrong, so if you want to win bets then take the opposite view of the right wing economists. Listen to Krugman.

  8. Darf Ferrara says:

    HP, you changed the subject from TARP to monetary policy. TARP isn’t a policy, it was an extra-legal method of putting money into the hands of the “right” people. In both the banking bailout and the GM bailout the cost of the moral hazard isn’t calculated. In my view, that is one of the main costs of those bailouts.

    Jon, giving better loans to college students is putting money into the hands of the rich (those that go to college) at the expense of those that don’t.

    Also, keynsian predictions haven’t held up well vs. monatarists. Scott Sumner has been (cautiously) running victory laps since the last unemployment report came out.

  9. Thanks Darf Ferrara, you beat me to it!

    Basically, the monetarists have been saying for a while now that monetary policy is currently TIGHT…in other words, I am not saying, nor are true right wingers (in the Milton Friedman sense) saying, that current monetary policies going to produce inflation…merely that inflation can be produced IF monetary policy were loose enough.

  10. Jon says:

    Jon, giving better loans to college students is putting money into the hands of the rich (those that go to college) at the expense of those that don’t.

    It’s better than what we are doing. I don’t think I’d call indebted college students as a group rich, but this is not my point. Whether Sumner is right or Krugman is right is not the point either. The point is when the government gives banks money at 0.75% and they turn around and loan it to students at 6.8%, well the government could just cut out the middle man instead of giving them this gift. The gift could go to the relatively poorer than banker students. The fact that banks simply feed at the public trough explains their stock price, so I think pointing to their stock price like it was a good investment whereas GM is a failure is too simplistic.

  11. Darf Ferrara says:

    HP, I think that you are missing the point with all the talk about monetary policy. First of all, while it’s possible that the TARP program actually did make money by some metric, it’s also easy to fudge that with accounting tricks. The GM bailout didn’t have the advantage of being obscurable, but Jon can easily come back with a counter factual saying “What if everyone in the auto industry lost their jobs? Then the taxes those people would have been lost, and the gov’t would have had to pay for the expanded welfare rolls”

    You can argue back and forth about the what is the right counter factual, but the point is first, we really don’t know how much was gained or lost compared to how much would have been gained or lost had no bailouts occurred. Second, and more importantly, before the bailouts we had no way to know whether or not they would make money for the taxpayer. It is the a priori that needs to be considered, and you are just claiming “a posteriori, TARP made money, GM lost money, so we should have done the former and not the latter”. That doesn’t help guide policy at all.

    I opposed the bailouts, you and Jon both approve. Jon approves based on a sort of utilitarian, greatest good principle, I oppose based on abrogation of the law being an inducement to moral hazard. Do you have any reason to say that one extra-legal bailout should happen, but another shouldn’t?

  12. I wasn’t a big fan of ALL the bailouts, as well. Wasn’t necessarily arguing in favor of one over the other…just pointing out that one was alot less painful, from a taxpayers perspective.

  13. Jon says:

    just pointing out that one was alot less painful, from a taxpayers perspective.

    But that’s not obvious. Maybe this bail out appears better from the perspective of the stock price only, but how much of that is due to additional subsidy offered to banks? Things like the gifts on student loans. And many other gifts to bankers. This is just a gift from taxpayers. Also as Darf says this measure doesn’t consider the loss in tax revenue that would have resulted if GM had gone into bankruptcy and many job losses had followed. On net the GM bailout may have been much better. Considering only the stock price I think paints a misleading picture.

    It kind of looks to me like while you aren’t going to say you support corporate welfare, bailouts for the rich, etc, still you want to spin it in a positive way. Welfare for the poor on the other hand is unambiguously bad.

  14. Fine, from atleast a stock price perspective, this was better for taxpayers.

  15. Jon says:

    Yes. Always good to get a point of agreement, eh?

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