TARP, Auto Industry Bailouts, Economic Stimulus Put Nation Back on Path to Recovery

 

Last week, Rep. John Campbell was denied the OC GOP Central Committee endorsement on the grounds that slight more than a third of the group’s members sought to punish the Congressman for his vote on TARP and the auto industry bailouts.  The ringleader was Allan Bartlett who told R. Scott Moxley of OC Weekly the reasons why. 

“Bartlett says the vote outcome serves as both an ideological and personal rebuke of the congressman, especially after Baugh–a stickler on party loyalty–told central committee members to back the incumbent.

“Personally, I can’t forgive the congressman for voting for TARP,” Bartlett told me. “TARP stands for everything Republicans should be against. But Campbell lost the endorsement for other reasons too. Lots of party members believe he’s aloof. We see Dana Rohrabacher and Ed Royce all the time at party events. We never see John. Others members say he won’t ever return their phone calls. He just blows us off.”

That’s a telling statement. ” TARP stands for everything Republicans should be against.”  Now we won’t quibble with comments from the OC GOP committee members about Campbell not being communicative or being out of touch with his district — which he doesn’t bring a dime of federal money here for anything — as we believe it makes this Congressional District one that pays federal taxes to get very little in return.  GOP Presidential candidate Mitt Romney is campaigning in Michigan on the premise that the federal government should not have bailed out the automobile industry.  It should have failed on its own and taking down the huge supply chain of small businesses and companies that serve the auto industry from parts suppliers, to auto finance, to insurance to the diners and bars patronized by the rank and file.

 The New York Times has this editorial on Detroit’s comeback to the tune of 1.4 million jobs.

The American economy was terrifyingly close to the brink in 2008 and 2009, and the impending collapse of General Motors and Chrysler threatened to be the final push. When the companies begged the federal government to save them from financial catastrophe, President George W. Bush and later President Obama ignored strong Republican objections, saving a signature American industry and the whole country from an even deeper crash.

Four years later, there are 1.45 million people who are working as a direct result of the $80 billion bailout, according to the nonpartisan Center for Automotive Research, both at the carmakers and associated businesses downstream in the economy. Michigan’s unemployment level is at its lowest level in three years. G.M. is again the world’s biggest automaker, and both companies are reporting substantial profits.

And yet Mitt Romney, along with the other Republican presidential candidates, has spent the days before the Michigan primary denouncing the bailout that has rescued his native state. Mr. Romney has been especially vociferous in his insistence that he would have allowed the carmakers to go bankrupt, and said he believes they could somehow have clawed their way back to profitability without a dollar of federal assistance.

“The president tells us that without his intervention things in Detroit would be worse,” he wrote recently in The Detroit News. “I believe that without his intervention things there would be better.”

This critique is detached from reality. Steven Rattner, who was Mr. Obama’s lead auto adviser, wrote in The Times on Friday that not a single dollar of private capital could be found to prop up the companies, despite desperate efforts, and he challenged Mr. Romney to name one investor who might differ. The Detroit News, which otherwise enthusiastically endorsed Mr. Romney in the primary, said he was dead wrong about the bailout. Only the government was in a position to save the auto industry from “the darkest hour of its history,” the newspaper’s editorial board wrote.

The Times noted that Labor Unions made significant concessions to the auto makers and worked with management to help rescue this critical American industry. But Labor Unions (and all manner of public employee unions) are the boogeymen that Republicans are running on this year.

“Neither Mr. Romney nor any of the Republican candidates are able to admit that sometimes only the government can rescue a major sector of the economy. Any autoworker, however, can explain it to them.”

Let’s move on to TARP. 

The Daily Beast also documents the success of TARP, which I invite Bartlett to dispute, with facts.  The story is a year old but highlights the misperceptions Americans have about what TARP was, what it cost them, and what TARP paid Taxpayers back in return.  The program was certainly not without its failures, but underscored the need of the a program to save our economy from total collapse.  From the story:

One lesson of the financial crisis is this: when the entire financial system succumbs to panic, only the government is powerful enough to prevent a complete collapse. Panics signify the triumph of fear. TARP was part of the process by which fear was overcome. It wasn’t the only part, but it was an essential part. Without TARP, we’d be worse off today. No one can say whether unemployment would be 11 percent or 14 percent; it certainly wouldn’t be 8.9 percent.

That benefited all Americans. TARP, says Douglas Elliott of the Brookings Institution, “is the best large federal program to be despised by the public.”

The source of outrage is no secret. Bankers are blamed for the crisis and reviled. The bank bailout—TARP’s first and most important purpose—was instantly unpopular. Most Americans, says Elliott, “believe that taxpayers spent $700 billion and got nothing in return.”

What this ignores—aside from being factually incorrect—is that an alternative being promoted at the time was widespread nationalization of banks. The cost would have been many times higher; the practical problems would have been enormous. As it was, TARP invested $245 billion in banks (and about $165 billion into the other programs). The extra capital helped restore trust. Meanwhile, the Federal Reserve increased its lending; the Federal Deposit Insurance Corp. guaranteed $350 billion of bank borrowings. Banks resumed dealing with each other because they regained confidence that commitments would be honored.

Of the $245 billion invested in banks, the Treasury has already recovered about $244 billion, including interest payments, dividends, and cash from sold bank stock warrants. So the bank rescue has roughly broken even. When TARP’s remaining bank investments are closed, the Treasury expects an overall profit of about $20 billion.

The biggest evidence that the bailouts and stimulus programs worked is that people no longer believe they were needed. But did the stimulus progtram work?  There are no fewer than nine studies on the matter.  The Huffington Post does a nice job of summarizing the impact with a story from last week.

In the first half of 2008, GDP stagnated, and then in the second half, it began to contract at an alarming rate. In the 4th quarter of 2008, GDP declined by an astounding 9 percent. As the economy shrank, companies began laying off more and more people, and we began losing jobs left and right. By the time President Obama took office, the economy was in a free-fall. In January 2009, the country lost more jobs in a single month than it had in any month in the previous 60 years.

Then, in February, we enacted the stimulus bill. It was designed to stop the bleeding and turn the economy around by pumping billions of dollars into the economy through things like infrastructure investments, aid to the states, and tax breaks. So what happened after the stimulus started? Did the economy continue its disastrous tumble?

In the second quarter of 2009, the first full quarter after the stimulus passed, the economy did still contract, but at only a 0.7 percent rate, and then began to grow again in the third quarter. Job losses also began to slow down immediately. Before the stimulus, we were losing more and more jobs each month. After the stimulus: fewer and fewer, until eventually we started adding jobs again. Private-sector layoffs actually peaked in the month the stimulus started, and then declined dramatically.

In early 2009, every indication was that the economy was headed over the edge of a cliff. But at the last second, the country swerved away from the edge and started heading back in the right direction.

Now maybe it was just pure coincidence that the turnaround began at almost the exact same moment that the stimulus started. It could be possible that that the economy began to grow again, job losses began to slow and layoffs started coming back down to earth all at nearly the same time — right after the president signed the Recovery Act — and it had nothing at all to do with the stimulus.

More likely, of course, is that the myriad independent economists — from the Congressional Budget Office to Moody’s.com to Macro Economic Advisors — are right.

The stimulus worked.

There are plenty of reasons not to support John Campbell for Congress in 2012.  Notably Irvine Mayor Sukhee Kang’s track record of governing in an economic crisis without cutting services or raising taxes.  But Campbell’s votes on TARP and the automobile bailout aren’t a reason why.