“The Troubled Asset Relief Program may have been the least of the rescue measures, but it was the highest risk, because the people’s bipartisan representatives were required to put their imprimatur on unpopular bailouts…

…Nonetheless, TARP was enacted Oct. 3, 2008, almost four months before President Obama took office. On March 16, 2008, the Federal Reserve arranged a fire sale of Bear Stearns. Between Sept. 19 and Oct. 26, numerous other institutions were bailed out; the money-fund industry and commercial paper market were propped up; bank depositors were favored with a big extension of deposit insurance. On Dec. 19, as a final act, the Bush administration directed $17.4 billion in TARP funds to keep General Motors and Chrysler afloat so the Obama administration wouldn’t be confronted with their liquidation on its first day in office. There were numerous discrete acts that constituted the bailout. All were undertaken by the Bush administration. There was one heroic, pell-mell effort at bipartisan legislative coalition-building of the sort that never took place during eight years of the Obama administration. That was TARP. Mr. Obama wasn’t even a character in the HBO movie about all this, “Too Big to Fail.” As all now agree, it was Lehman, not the washing through of modest subprime losses, that turned a regional U.S. housing downturn into a global financial panic. In his memoirs, Fed chief Ben Bernanke protests that the Fed knew exactly what a catastrophe Lehman’s unmanaged collapse would be, but its hands were legally tied at the time. Actually, what seemed obvious at the time was that the Fed and Treasury were reacting to the populist revulsion against bailouts. They feared getting on the wrong side of public opinion and the politicians.”, “Obama Did Not Save the Economy”, The Wall Street Journal, January 21, 2017

“I think TARP was a lot more important than Mr. Jenkins notes, as it recapitalized all the Too Big to Fail Banks and other banks, whose capital had been depleted by mark to market losses of securities and reserves for future loan losses.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Opinion

Obama Did Not Save the Economy

It’s not his fault he arrived too late to play a role. But getting the credit wrong also gets the blame wrong.

By Holman W. Jenkins, Jr.

As he goes out the door, President Obama is praised lavishly for saving the financial system and warding off a second Great Depression—which indeed would have been an amazing accomplishment for a backbench U.S. senator.

To cite an example almost at random, Harvard economist Kenneth Rogoff claimed on NPR this week that Mr. Obama “pulled us out of a very deep abyss,” though Mr. Rogoff also allowed that President Bush deserves “a little credit here.”

Put aside the desire to be nice to the outgoing president. Such spin is unpromising simply in the face of the calendar.

The Troubled Asset Relief Program may have been the least of the rescue measures, but it was the highest risk, because the people’s bipartisan representatives were required to put their imprimatur on unpopular bailouts. Nonetheless, TARP was enacted Oct. 3, 2008, almost four months before President Obama took office.

On March 16, 2008, the Federal Reserve arranged a fire sale of Bear Stearns. Between Sept. 19 and Oct. 26, numerous other institutions were bailed out; the money-fund industry and commercial paper market were propped up; bank depositors were favored with a big extension of deposit insurance.

On Dec. 19, as a final act, the Bush administration directed $17.4 billion in TARP funds to keep General Motors and Chrysler afloat so the Obama administration wouldn’t be confronted with their liquidation on its first day in office.

There were numerous discrete acts that constituted the bailout. All were undertaken by the Bush administration. There was one heroic, pell-mell effort at bipartisan legislative coalition-building of the sort that never took place during eight years of the Obama administration. That was TARP.

Mr. Obama wasn’t even a character in the HBO movie about all this, “Too Big to Fail.”

When he finally arrived, his contribution consisted of fudgy bank “stress tests,” less to establish confidence in the banks than to establish confidence in the new administration, under lefty pressure at the time to reinflame the crisis by nationalizing the industry.

He gave us a $787 billion pork-barrel “stimulus,” an exercise in hand-waving which ever since has figured prominently in the efforts of Obama publicists to create confusion about what ended the crisis.

His own Council of Economic Advisers, in a yeoman effort, argues essentially that since a second Great Depression didn’t happen, whatever Mr. Obama did gets the credit. Never mind that recoveries normally follow recessions.

Many convince themselves that Mr. Obama surmounted overwhelming political opposition to prop up GM and Chrysler, when the clear lesson of the Bush action is that no president would have been prepared to pay the political price of letting them fail.

We are perfectly serious when we say that Mr. Obama will carry a burden of cognitive dissonance on this point in the decades ahead. It isn’t his fault that he arrived too late to play an important role in the rescue. But in getting the credit wrong, we also get the blame wrong.

As all now agree, it was Lehman, not the washing through of modest subprime losses, that turned a regional U.S. housing downturn into a global financial panic. In his memoirs, Fed chief Ben Bernanke protests that the Fed knew exactly what a catastrophe Lehman’s unmanaged collapse would be, but its hands were legally tied at the time.

Actually, what seemed obvious at the time was that the Fed and Treasury were reacting to the populist revulsion against bailouts. They feared getting on the wrong side of public opinion and the politicians.

New evidence on this agitated question comes from University of Pennsylvania legal scholar Peter Conti-Brown, in his history of the Fed, “The Power and Independence of the Federal Reserve.” He finds Mr. Bernanke’s legal arguments wanting and concludes that political imperatives were indeed paramount.

He also argues that the Fed’s decision, though terrible for the economy, worked out just fine for the Fed. The post-Lehman meltdown justified the central bank’s subsequent bailout efforts and positioned the Fed to survive Dodd-Frank with its powers intact.

OK, presidents get credit they don’t deserve. They also sometimes escape blame. Let it be said that, in the kind of omission that damns a presidency in the eyes of the cognoscenti, it was President Bush who should have and could have stepped up and provided his appointees political cover to spare the world the Lehman meltdown.

 

Posted on January 24, 2017, in Postings. Bookmark the permalink. Leave a comment.

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