The Brink

I’ve explained here, here, here, here, here, and here, among others, why I grudgingly supported the original Paulson Plan that formed the foundation of TARP and why I have been opposed to its expansion and to all the subsequent bailouts. This post gives a pretty good anecdotal glimpse into why the situation in mid-September 2008 was so uniquely dire compared to the more usual workings of even a fairly severe recession.

12 thoughts on “The Brink”

  1. Crank, I heard from several sources that the money that was appropreated for TARP would have paid off every mortgage in the US. If that is accurate, can you imagine the economic impact of all the homeowners having their mortgagge money in their pockets to spend or save? Industry would not be able to keep up with the demand. Sounds like economic recovery to me.

  2. Crank, I heard from several sources that the money that was appropreated for TARP would have paid off every mortgage in the US.
    Which sources? Now, I could be screwing up the math here, but let’s walk through this.
    Let’s say the average outstanding balance on a mortgage across the entire U.S. home owning population is $250k (this could be high, it could be low, it all depends on whether your ‘bailout’ for mortgages includes ‘everyone’, or only people under a certain income threshold). That means, for everyone $1M in government bailout money, you pay off 4 mortgages. For every billion, you pay off 4,000 mortgages. Therefore, the original TARP payout which was around $750B, would have paid off approx. 3,000,000 mortgages.
    According to the Census bureau, there are currently 73.8 million homeowners (
    Doesn’t seem to make much of a dent. Now, these numbers are extremely raw. For one, that 73.8 million surely includes people who own their homes outright. Also, without the complete breakdown of the numbers (I don’t have the time to do the research), I do not know if that number accounts for individuals who own multiple properties (i.e., does the 73.8 million mean there are 73.8 million individuals who own one or more properties?). If it only counts an individual who owns multiple properties as ‘one’, then you’re talking about people carrying multiple mortgages which would add to the monetary outlay necessary to pay off ‘all mortgages’.
    Again, this is extremely simplistic, and I could very well be screwing up this math (I’m doing it very quickly). Either way, I don’t think there’s any way that the original layout for TARP could have covered every mortgage in the United States.

  3. Mad, I want a double of whatever your source is drinking. It is not close. The TARP funds levered were not even close to being able to take mortgages off the banks’ hands. Paid off in full? No sir.

  4. What’s to stop a similar withdrawal from happening again? Is the moral of the story that several large players can pull the trigger and destroy the US economy anytime they want?

  5. I can not vouch for the accuracy of radio reports, but multiple shows and guests have reported this. As for the 73.8 million homeowners W, what percentage are already paid in full? My parents never had a mortgage. They built a house with cash, paying as they went. Yes, I know they are not typical, but many older Americans have already paid for their homes. Also, I don’t have the numbers in front of me, but I doubt the average home mortgage is $250 K.

  6. Let’s see if we can figure out why Crank supported the orginal TARP and not the current stimulus package. Could it be that the former was under a Republican president and the latter under a Democratic president?

  7. There are these things called links, Magrooder. If you click them, there are words. You might try reading them some time.
    I supported only those interventions that were fastest-moving with the lightest footprint – the Bear Stearns bridge, which basically just kept the lights on for a few days until a sale could be arranged, and Paulson’s plan to buy bonds, which was likely to end up not costing the taxpayer much if any money in the long term. I never supported just giving money to failing businesses or having the feds buy stock in anything. I was and continue to be appalled at some of the things Paulson did with the TARP money.

  8. Felix Salmon is refuting the Kanjorski story, claiming the 500 million figure was from an anonymous source in a Daily Post article only.

  9. Link?
    Seth, my understanding is that the 500 million figure was the information Paulson and Bernanke had in front of them at the time. It was certainly what I was hearing through the grapevine at the time. It may be that it was bad information, but the fog of war applies to financial panics as well – you have to deal with the facts as they are presented to you.

  10. Crank, you want to see your own words? OK:
    “In other words, the actual merits of a deal may be far less important than doing something quickly that reassures the markets. There’s an old military saying that a bad solution today is sometimes better than a good one a week from now; or, as Chesterton put it, if a thing is worth doing, it’s worth doing badly. Speed matters more than getting it right; and we can always push for additional pro-growth measures and scaling back of the worst add-ons later if the Democrats insist on larding the bill up with goodies. All the policy arguments in the world can’t stop a herd of frightened investors from stampeding off a cliff, and will do us no good at the bottom.”
    Substitute “Republicans insist on larding up the bill with tax cuts for the rich” for “Democrats insist on larding the bill up with goodies” and I would agree 100%.

  11. You are missing the key distinction: the original TARP bill was aimed at the financial panic, and thus speed was critical to calm the markets. What we are dealing with now is the ordinary legislative process of stimulating the economy for the long haul, so just throwing something out there is foolish in the extreme.

  12. You are the one missing the similarity. The purpose of the stimulus is to stimulate activity in the short term, not for the “long haul.” The longer term stimulus is to come from the thawing of the credit markets, the beginning of the return to eceonomic stability and, ultimately, to the jump-starting of technologies designed to, among other things, reduce our dependence on middle east oil and to assist the redevelopment of our traditional advantages in technological advancement.

Comments are closed.