The Troubled Asset Repurchase Program, the controversial $700 billion package passed in the heat of last fall’s presidential election campaign, wasn’t presented as a bailout of a failed system. Rather, then-Treasury Secretary Henry Paulson and his allies touted it as an opportunity for the taxpayer to profit by making investments in name-brand companies. Indeed, during the Great Panic of 2008, American taxpayers reluctantly made a series of very expensive investments in blue-chip companies—Fannie Mae and Freddie Mac, the insurer AIG, General Motors. Since these bailouts were designed to halt failure rather than stimulate growth, the return on most of these efforts has been largely intangible.

Apr 16th 2009
From The Economist print edition
Financial crises can drag on because efficient remedies are politically unpalatable

AS THEIR banking crisis approaches Japanese proportions, Americans can take comfort from the fact that their political culture is more capable of finding a solution. Or can they? Today’s anti-banker backlash bears a striking resemblance to the voter outrage that stymied efforts to fix Japan’s banking system in the 1990s. Indeed, an enduring lesson of financial crises is how political constraints interfere with economically efficient solutions.

For example, America’s Treasury and the Federal Reserve began examining options to use public money to buy up illiquid mortgage assets and to inject capital into financial institutions shortly after rescuing Bear Stearns, a failing investment bank, in March 2008. But it was another six months before they acted on those plans. “There was no way we could go to Congress without the American people understanding we faced a crisis,” says Henry Paulson, the treasury secretary at the time.

Two months ago, gas cost $4 a gallon. The media had another heyday, telling us all we were going to certain doom as no one could afford to get to work.

Now that gas is back to half that, and its lowest prices in decades, or possibly ever, does the media even mention it? No; they cook up another fear-and-doom concept about something else and run with it to keep us all glued to our TVs and Tivos, which keeps their Arbitron and Neilsen ratings up to keep their ad revenues up. Arbitron and Neilsen may mean nothing to you, but mean everything in broadcasting: just one point means billions of dollars to a TV network.

How cheap is gas today? Adjusted for inflation, $2 a gallon today is the same as 40¢ a gallon in 1973! Gas is at least as cheap as it has ever been. Yay!

Not only is gas cheap, remember how the media was trying to scare us all into paralysis when home prices were rising a few years ago? All they showed us were young families unable to purchase homes, but never the zillions of nice, normal people who were able to raise their families someplace safe, and see their investments grow at the same time. All we heard were numbers telling us how fewer people could afford to buy homes.

Now that home prices have gotten a lot more affordable for all of us, more people can afford homes than ever. It’s good times once again!

Okay, this is priceless — and anyone who wants to understand not only our economic calamity but also why we’re still screwed has to watch it. Oh, and don’t worry — it’s also absolutely, laugh-out-loud hilarious (in a bittter sort of way).

Nouriel Roubini and Nassim Taleb are two of our most trenchant and learned commenters on finance. It’s time to start listening to them — if Obama is serious about running a centrist administration, it’s a scandal that he tapped Robin Rubin acolytes Summers and Geithner, not Roubini and Taleb, to run economic policy.

By Mark Pittman and Bob Ivry

Feb. 9 (Bloomberg) — The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.

By Mark Frauenfelder on Economy

Under the plan, the size of a key Federal Reserve lending program will be expanded to $1 trillion from $200bn.

In addition, a public-private investment fund of $500bn will be created to absorb banks’ toxic assets and could be expanded to $1 trillion.”

It’s pretty laughable that anyone would believe you could print this much money without causing inflation. The thing we don’t know is how much inflation will be caused – paradoxically, the better the stimulus works (i.e. people start buying again), the worse the inflation will be (i.e. higher demand plus higher supply of money pushes prices up). If inflation stays around 5%, I’ll admit, there’s no catastrophic problem. But, if it hits 10%, 15%, then the interest rates will have to be adjusted to encourage people to invest in anything but the things which are going up in value, i.e. commodities. And at that point, how exactly will the US maintain its projected debt to GDP level of 70-80% when the stimulus is all paid for?

It just sounds like a recipe for disaster to me.

US Treasury Secretary Timothy Geithner has unveiled a comprehensive bank bail-out plan worth at least $1.5 trillion (£1.02 trillion).

Under the plan, the size of a key Federal Reserve lending program will be expanded to $1 trillion from $200bn.

In addition, a public-private investment fund of $500bn will be created to absorb banks’ toxic assets and could be expanded to $1 trillion.

The initiative is called Project Match.

Part of the debtor mentality is a constant, frantically suppressed undercurrent of terror. We have one of the highest debt-to-income ratios in the world, and apparently most of us are two paychecks from the street. Those in power — governments, employers — exploit this, to great effect. Frightened people are obedient — not just physically, but intellectually and emotionally. If your employer tells you to work overtime, and you know that refusing could jeopardize everything you have, then not only do you work the overtime, but you convince yourself that you’re doing it voluntarily, out of loyalty to the company; because the alternative is to acknowledge that you are living in terror. Before you know it, you’ve persuaded yourself that you have a profound emotional attachment to some vast multinational corporation: you’ve indentured not just your working hours, but your entire thought process. The only people who are capable of either unfettered action or unfettered thought are those who — either because they’re heroically brave, or because they’re insane, or because they know themselves to be safe — are free from fear.