You are right about tarp however, that was idiotic and totally unneeded.
Is English a language you rarely use?
Essentially, it amounts to socialism for huge corporations, but not for little humans. "Too big to fail" for them - "too poor to survive" for us.
First, you're ignoring the basic difference between expenditure and investment. When the government spends a dollar on healthcare, that may be an "investment" in an abstract sense, but the government is not directly getting that money back. In budgetary terms, it's expenditure.
That is not true for the financial bailouts. There, the government didn't just spend money, it got assets in return. With respect to TARP, the government got most of that $400 billion back. It made a nominal profit, and adjusted for inflation maybe you can book it as a $24 billion loss: https://www.nationalreview.com/2015/01/overselling-tarp-myth....
With respect to quantitative easing, what you're referring to is the Fed's SOMA operations. The Fed bought $3.5 trillion in assets (securities and treasuries--i.e. the right to be repaid money in the future). It is getting that money back as those assets mature. Right now, the Fed has about a $67 billion unrealized loss on those assets: https://seekingalpha.com/article/4225750-deterioration-fed-b.... That means the fair market value of the assets is $67 billion less than the Fed's purchase price.
So the actual cost of those programs is the $24 billion and $67 billion losses, not the $400 billion and $4 trillion it cost to purchase those assets. To put those numbers into perspective, the government has a portfolio of $1.5 trillion in student loans. Losses on that portfolio will cost the government $180 billion over the next decade: https://www.forbes.com/sites/prestoncooper2/2017/08/04/why-g....
Second, you dramatically underestimate the cost of those social welfare programs. If we scaled up our welfare system to Swedish levels, that would cost an additional $2.2 trillion more per year.[2] That is five times the upfront cost of TARP ($400 billion), and 100 times the actual cost of TARP ($24 billion). Welfare is expensive. Even if universal healthcare reduces our healthcare spending to German or French levels, we're talking 10-12% of GDP, or $2.3 trillion: https://data.oecd.org/healthres/health-spending.htm. Unlike the financial bailouts, that's (1) money you have to spend every year, not just once-in-a-generation; and (2) money you're not getting back.
Put it another way. Together, all levels of government already spend about $7.4 trillion per year. $400 billion--what the government spent on a once-in-a-generation bailout, was just 6% of what it spends every year. $24 billion--the actual long-term cost of TARP, is just 0.3% of government's yearly expenditures.
[1] Real-world example. Say in 2008 my parents house was worth $500k. The housing market collapses, and suddenly my parents need to sell their house. If they put it on the market, it would go at fire sale, say $200k. I bail them out, buying it for $450k. What was my cost of bailing them out? It wasn't $450k. It was $450k minus whatever I can ultimately sell the asset for. Say the market never recovers and I sell the house for $400k, 20% below the peak. The "bail out" cost me $50k, not $450k.
[2] Swedish government spending is 49% of GDP, versus 38% of GDP in the U.S. https://data.oecd.org/gga/general-government-spending.htm. That 11% of GDP difference amounts to about $2.2 trillion.
The Fed printed trillions in new money and pumped it into asset classes, mainly the housing market, through a middleman--Wall St.
Even if you ignore everything wrong there and just say "they eventually got some of their money back" like you did, it still matters that they printed (ie effectively stole in real terms) 4 trillion dollars that they didn't own.
If you or I went out and printed US currency and bought securities with them--we'd go to jail. They wouldn't care that we made money on our investments.
Most of the profits from QE appear to have gone to Wall St (1), whom made 650M from it.
If the Fed is going to print trillions, at least buy healthcare or space exploration with it. Stop this circle jerk nonsense with Wall St.
1-http://fortune.com/2014/07/23/big-banks-made-650-million-off...
Printing money might be bad policy, but how is it stealing? The U.S. has the sovereign (and Constitutional) right to create money. (Also, the Fed's job is literally to create money to meet economic targets. SOMA was unprecedented not because the government "printed money" but because it bought an asset class it previously did not buy--securities.)
> If the Fed is going to print trillions, at least buy healthcare or space exploration with it. Stop this circle jerk nonsense with Wall St.
This is again ignoring the fundamental difference between printing money for consumption, and printing money to buy assets. If the fed prints money to buy healthcare or space exploration, it doesn't get that money back. If it prints money to buy assets, it gets almost all of that money back.
This is not an esoteric or meaningless distinction. The federal government originated $1.4 trillion in student loans since 2009. Would you call that a $1.4-trillion "free college" program? Of course not. People have to pay the money back, and the government will get most of their money back. The actual cost will be about $180 billion. By contrast, the government had spent that $1.4 trillion on healthcare or space exploration, it would have actually cost $1.4 trillion.
You can argue about the merits of bailing out Wall Street. But what you can't argue about is what it actually cost the government about $100 billion, not $4 trillion.
Also, I wouldn't say it's clear that healthcare or space exploration aren't assets, even in the strict financial sense you mean. What's the expected taxable value of a citizen? If you invest less than that on keeping them alive, then their life is an appreciating financial asset. Similar logic applies to space programs, if the space capacity you fail to build out ends up being something you buy from another country (as in the case of US astronauts riding to the ISS on Soyuz). And of course this is the shallowest of analyses - there are substantial additional hidden (financial) costs to letting your citizens die, or being dependent on foreign powers for space infrastructure.
The thing I find puzzling, and possibly telling, is that conventional wisdom tells us inflation ought to have spiked after the 2008 bailout. Instead it plummeted, indeed briefly became deflation. This tells us that money became very scarce. Why, after so much money was printed and handed out? Because it all went to the banks, and they essentially pocketed it and didn't lend it out. So what exactly was the purpose of doing that?
The right is actually with congress to have the power to do this. The Fed doesn't have any constitutional authority to do this.
Money gets its value from real goods and services. So when someone prints new money it steals that value from those who created it. The Fed likes to claim they create value, but they are just money changers.
What does healthcare do for people of working age? It allows us to work more and more effectively, to make more money and either consume fewer subsides or to pay more taxes.
Good healthcare means more and more effective workers.
Now, I think that universal healthcare certainly provides benefits that make it worthwhile, just as the bailout provided financial stability benefits that made it worthwhile. But those things are in the benefits column. I'm talking about how much an accountant would say that a government program cost.
From an MMT perspective, the government (any one using it's own fiat currency) creates and destroys money rather than spending and receiving it, even if it pretends otherwise in an outdated effort to ape a commodity-/representational-money system.
So, viewed that way, it really has no need for such an asset.
> Now, it is true that money spent on universal healthcare isn't being lit on fire--the government and the people gain some benefit from it. But that's in the benefit column, not the cost column.
In the cost column is a reduction in private healthcare costs exceeding the I crease in public expenditures, as shown in every analysis (including ones from hostile sources), so if the government raised taxes so as to leave private taxpayers in the same position as they would be in with status quo policy, net government outflow would be reduced without any adverse impact on taxpayers.
Even under that view, you can still see a difference. Spending $1 trillion in healthcare requires the government to create $1 trillion permanently. Spending it to purchase mortgage backed securities that are eventually sold or mature requires creating that $1 trillion only temporarily (while the asset is held).
Buffett's investment during the time were an example of what the private sector can do (and my opinion, as a shareholder of brk.b, who is otherwise not a finance expert, is that the man wasn't nearly greedy enough when others were fearful, but even berkshire doesn't have unlimited reserves.)
I think the big mistake of '08 was 'bailout with insufficient regulation' - if the government does need to do a bailout, that bailout should come with rules to prevent that sort of thing from happening again, and I think that there wasn't enough of that rule making after the '08 crisis.
I was just making a more general statement about the role of government in response to what I thought you were implying by pointing out the differences between how an investment in a failing company (that then doesn't fail because of your money) is accounted for differently than an investment in another person's health or education, even if the latter may net more.
In general I think the government should mostly stick with things that the private sector can't do well. The private sector is really bad at investing in things like healthcare and education for the poor that make people go from being net consumers to net producers. Government should largely focus on the things that government can do effectively but that the private sector can't do effectively. Usually this means providing services to the indigent and providing regulation (not direct ownership) of markets. But there are obviously exceptions, and I agree that '08 was one of those, it was a market failure that was big enough that the private sector couldn't really handle it, and I think direct interference was a net positive, even if I think the government could have done a much better job of it.
"On December 19, 2014, the U.S. Treasury sold its remaining holdings of Ally Financial, essentially ending the program. TARP recovered funds totalling $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit or an annualized rate of return of 0.6% and perhaps a loss when adjusted for inflation"
[0]: https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program
And it doesn't change the fact that TARP didn't cost any real money.
Investment into NASA or infrastructure or education also has a return on investment, but anytime TARP is mentioned in comparison someone will bring up its ROI.
I know the answer is that the ROI for TARP is so much easier to quantify, but I still want to make the distinction that it's not unique for a government program.
Seriously. The ROI of solving the homeless and mental health crisis to the point where most of them can get back to work and become tax paying citizens is probably pretty good too.
Yes, I meet very many people who take a variety of anti-psychotic meds.
> They go through the rest of their life barely able to grasp new concepts with a drug specifically designed to mute that part of their brain,
This describes a few of them, but not most of them.
This assumes zero value of having the Treasury backstop a business. There is always a cost associated with making an investment (which TARP was). In a sense, the entire discipline of pricing risk is based on calculating this cost.
Whether or not the chosen risk eventually paid off is a different question than the whether the risk had a cost to begin with.
* - I was a proponent of TARP as one of the better risks on the table.
If national defense is such a great deal, why does the government have to fund it?
If FDIC insurance is such a great deal, why does the government have to fund it?
Why does the government have to do anything? Why don't private investors jump in and do everything?
The answer is: because there are certain things that are only a great deal if they are done by everyone all at once. Left to individual players, sometimes the incentives align like running from a bear--I don't have to outrun the bear, I just have to outrun one other person.
This is why we have government at all. Humanity was not handed a government, we invented it to solve problems that could not solved by piecemeal individual action.
And for TARP, a reminder that it came after Lehman failed and money markets broke the buck. The first House vote on TARP failed. It was adopted at the last minute, only as it became clear that it was necessary.
TARP was not a benign thing but instead we should make sure this never happens again.
If the entire highway system increases GDP at least $250 billion (1.25% of GDP) then highways are profitable.
Building pubic-use roads without government planning, permitting, and eminent domain is frankly not going to scale, aside from the nightmare of how all the different owners of these roads would go about rent-seeking.
1-https://www.brookings.edu/blog/up-front/2017/08/18/the-hutch...