$5 Trillion in new debt since Pelosi vowed no deficit spending

[DC Tom]

Sure, after-the-fact. The point is that it impacted the 2008 and 2009 budget years. And yes they are touting the money spent where they've recovered it, but not much cheerleading about ALL of the bailouts (more than just F&F).

 

What's "after the fact"?

[Pine Barrens Mafia]

Which is yet another reason why I never considered him to be a true fiscal conservative. The worst was the disastrous medicare prescription entitlement. Talk about a budget buster.

 

Of course in the Health Insurance bill, liberals increased the size of this entitlment by closing the medicare prescription "donut hole".

 

 

The MMA part D was written by Teddy Kennedy (as was NCLB). Shock. Bush co-opted it to try and stem the sinking of his ship.

[Magox]

So it's unfair to look at TARP & ARRA in the same way, as TARP did not permanently increase the deficit and actually accomplished what its proponents said it would.

The moral hazards created through TARP are virtually immeasurable. TBTF became TBT(ever)F, and what is even worse about it is that it was with taxpayer money. It's the old “heads, I win; tails, the Government will bail me out” dilemma. There is nothing that TARP did to address this problem. You can't possibly have a more reasonable judgement for at least another decade or so. We have to wait until the next credit cycle comes about and see how that plays out before you can come up with a fair conclusion.

 

Also, TARP was in the business of picking winners and losers, that creates all sorts of distortions and disallocations in the market place.

 

Another area where TARP has failed is in the mortgage market. Look at HAMP, there is solid evidence that as a result of HAMP with was through TARP that many people stopped paying their mortgages because they knew or suspected that they were also going to be receiving their own Bailouts. It is worsening the foreclosure mess we are in.

 

Also, what about all the "Toxic assets" that the original TARP was suppose to help solve? This was never addressed, we all know that those assets are still on the banks balance sheets or maybe even worse yet on the Fed's books. You don't believe this also is playing a role or impacting banks confidence when it comes to lending? I understand why they didn't follow through with this, because the costs would of been much higher but the fact is that many of these toxic assets are still on the books which is another reason why foreclosures are continuing to pile up. So in essence, TARP didn't do anything effective to address the mortgages, which is at the heart of the problem.

 

I suppose it boils down to how you define its success. The main objective for many people was that it was suppose to increase lending and on that front it has failed miserably. When you look at it from the perspective of addressing TBTF, it receives another failing grade. When you look at in regards to the mortgage market, it receives another failing grade. Did it address reckless risk taking? Nope, as a matter of fact it made it worse, because "heads they win, tail the taxpayer loses".

 

The only area that it succeeded was that it did help restore confidence in the capital markets, but of course what really saved the markets from plunging from a tangible POV was CPFF. If it wasn't for CPFF, everything would of dried up, there is no denying this.

 

 

I will leave it with this, "The bailout, with its huge generosity to the large “too big to fail” financial institutions, has greatly exacerbated moral hazard problems."

That's from Ken Rogoff.

[Magox]

 

So, yes, I do support deficit stimulus under these severe circumstances because the alternative would've been 20% unemployment in addition to significant debt accumulation. That is, tax revenues would have fallen significantly more and spending would've gone up automatically to support increased unempolyment benefits at that level.

And you criticize others for "talking points"? First that number you use, 20% is ridiculous. The jobs that were saved were mainly from the public sector, which many of those jobs are being eliminated as we speak. The size of State and local governments were overbloated, they went up with the bubble like tax receipts from the housing and credit boom of the mid 2000's, so when the bubble burst, those jobs needed to be eliminated. All the Stimulus did, in regards to it's public sector bailout was delay the inevitable.

 

Second, you can't possibly measure the impact it is having in the private sector right now and it's reluctance to hire. Most reasonable thinking people realize that once the sugar high runs out, the economy will slow. Businesses understand that they need to take a wait and see approach when it comes to hiring. Also, they realize that if the government spends a Trillion dollars they know that this spending will have to be payed for by the very same businesses through higher taxes.

 

I don't dispute that unemployment would of been higher without the Stimulus, I am sure that this would be the case. What I dispute is the absurd 20% claim and it's effictiveness. As I always say, you can't look at these sort of things from a black or white prism. The real question we should be asking was it worth it? Did a Trillion dollars worth of spending accomplish what it should of? The answer is a resounding no.

 

I find it funny how the W.H and liberals are now changing their definiton of success. Before it was a measurable goal of not allowing unemployment to reach over 8%. Now that it missed the mark in a huge way, they are re defining success as "If the stimulus bill hadn't of been created, we would be in a depression and unemployment would of reached 20%"

 

[GG]

Sure, after-the-fact. The point is that it impacted the 2008 and 2009 budget years. And yes they are touting the money spent where they've recovered it, but not much cheerleading about ALL of the bailouts (more than just F&F).

 

I said the same thing in September 2008 when Congress was vacillating on TARP. They had no choice but to stabilize the system. They could have done it in many ways other than injecting cash, but by the time Lehman collapsed, the options were very few. Yes, there were some that thought that the world was going to end and that all banks were toast, but I imagine that the crew that had inside knowledge of the financial balance sheets understood that a temporary liquidity reprieve would be sufficient to stabilize the system.

[Chef Jim]

What's "after the fact"?

 

That what was supposed to happen happened?

[GG]

The moral hazards created through TARP are virtually immeasurable. TBTF became TBT(ever)F, and what is even worse about it is that it was with taxpayer money. It's the old “heads, I win; tails, the Government will bail me out” dilemma. There is nothing that TARP did to address this problem. You can't possibly have a more reasonable judgement for at least another decade or so. We have to wait until the next credit cycle comes about and see how that plays out before you can come up with a fair conclusion.

 

Also, TARP was in the business of picking winners and losers, that creates all sorts of distortions and disallocations in the market place.

 

Another area where TARP has failed is in the mortgage market. Look at HAMP, there is solid evidence that as a result of HAMP with was through TARP that many people stopped paying their mortgages because they knew or suspected that they were also going to be receiving their own Bailouts. It is worsening the foreclosure mess we are in.

 

Also, what about all the "Toxic assets" that the original TARP was suppose to help solve? This was never addressed, we all know that those assets are still on the banks balance sheets or maybe even worse yet on the Fed's books. You don't believe this also is playing a role or impacting banks confidence when it comes to lending? I understand why they didn't follow through with this, because the costs would of been much higher but the fact is that many of these toxic assets are still on the books which is another reason why foreclosures are continuing to pile up. So in essence, TARP didn't do anything effective to address the mortgages, which is at the heart of the problem.

 

I suppose it boils down to how you define its success. The main objective for many people was that it was suppose to increase lending and on that front it has failed miserably. When you look at it from the perspective of addressing TBTF, it receives another failing grade. When you look at in regards to the mortgage market, it receives another failing grade. Did it address reckless risk taking? Nope, as a matter of fact it made it worse, because "heads they win, tail the taxpayer loses".

 

The only area that it succeeded was that it did help restore confidence in the capital markets, but of course what really saved the markets from plunging from a tangible POV was CPFF. If it wasn't for CPFF, everything would of dried up, there is no denying this.

 

 

I will leave it with this, "The bailout, with its huge generosity to the large “too big to fail” financial institutions, has greatly exacerbated moral hazard problems."

That's from Ken Rogoff.

 

TARP didn't create a moral hazard because the biggest one had existed for decades and that's why things got out of hand.

 

Again, I don't know where you get your expectation of TARP from, but its primary goal was to immediately stabilize the financial system from a massive global collapse, which it did. Everything else was attached to it afterwards. When Paulson & Bernanke were putting on the hard sales pitch in Congress, I don't think they were looking at TARP as a way to increase lending or for it to wash out the "toxic assets" The goal was to prevent further institutions from collapsing and have them be around to deal with toxic assets on their own - which they slowly are doing.

 

And I'm still trying to get the concept of the too big to fail. No one even considered that AIG may fall once they let Lehman go because they thought it wasn't too big to fail. And guess what, Lehman was small potatoes on a global scale. You will never get away from the too big to fail problem, because global financial companies have to be big, because the customers they're serving are equally big. So if you want to prevent financial houses from growing, you first have to break up global industries into smaller pieces. Financial services are a different animal and that's why it needs to be heavily regulated, but done smartly and consistently.

[DC Tom]

That what was supposed to happen happened?

 

Looked to me like more of an argument that effect should precede cause.

 

But I'm willing to admit the likelihood of my having missed his point, as he was rather vague in the use of "after the fact".

[Magox]

TARP didn't create a moral hazard because the biggest one had existed for decades and that's why things got out of hand.

 

Again, I don't know where you get your expectation of TARP from, but its primary goal was to immediately stabilize the financial system from a massive global collapse, which it did. Everything else was attached to it afterwards. When Paulson & Bernanke were putting on the hard sales pitch in Congress, I don't think they were looking at TARP as a way to increase lending or for it to wash out the "toxic assets" The goal was to prevent further institutions from collapsing and have them be around to deal with toxic assets on their own - which they slowly are doing.

 

And I'm still trying to get the concept of the too big to fail. No one even considered that AIG may fall once they let Lehman go because they thought it wasn't too big to fail. And guess what, Lehman was small potatoes on a global scale. You will never get away from the too big to fail problem, because global financial companies have to be big, because the customers they're serving are equally big. So if you want to prevent financial houses from growing, you first have to break up global industries into smaller pieces. Financial services are a different animal and that's why it needs to be heavily regulated, but done smartly and consistently.

I spelled it out pretty clearly regarding the "Moral hazards". If you don't see it, then what more can I tell ya? Also, in regards to it's objective, as I said, it depends on how you define success. If you want to define it as helping stabilize the markets ST, then yes, it did help. In regards to the overall impact will not be able to fully and fairly judged until the next credit cycle comes about, until then we won't know. However, we do know that it has worsened to the foreclosure crisis and we also do know that it didn't increase bank lending.

 

And yes, lending was part of it's objective of TARP

 

Another important goal of TARP is to encourage banks to resume lending again at levels seen before the crisis, both to each other and to consumers and businesses. If TARP can stabilize bank capital ratios, it should theoretically allow them to increase lending instead of hoarding cash to cushion against future unforeseen losses from troubled assets. Increased lending equates to "loosening" of credit, which the government hopes will restore order to the financial markets and improve investor confidence in financial institutions and the markets. As banks gain increased lending confidence, the interbank lending interest rates (the rates at which the banks lend to each other on a short term basis) should decrease, further facilitating lending

Edited October 25, 2010 by Magox

[TPS]

What's "after the fact"?

I was trying to say 1) TARP initially impacted deficits in 2008 and 2009; and 2) while there might have been some expectation of a return on the TARP investment, I don't know that anyone in 2008 was predicting when those returns would happen and how much they'd be "after-the-fact"?

Geez, you didn't get that?

[TPS]

And you criticize others for "talking points"? First that number you use, 20% is ridiculous. The jobs that were saved were mainly from the public sector, which many of those jobs are being eliminated as we speak. The size of State and local governments were overbloated, they went up with the bubble like tax receipts from the housing and credit boom of the mid 2000's, so when the bubble burst, those jobs needed to be eliminated. All the Stimulus did, in regards to it's public sector bailout was delay the inevitable.

 

Second, you can't possibly measure the impact it is having in the private sector right now and it's reluctance to hire. Most reasonable thinking people realize that once the sugar high runs out, the economy will slow. Businesses understand that they need to take a wait and see approach when it comes to hiring. Also, they realize that if the government spends a Trillion dollars they know that this spending will have to be payed for by the very same businesses through higher taxes.

 

I don't dispute that unemployment would of been higher without the Stimulus, I am sure that this would be the case. What I dispute is the absurd 20% claim and it's effictiveness. As I always say, you can't look at these sort of things from a black or white prism. The real question we should be asking was it worth it? Did a Trillion dollars worth of spending accomplish what it should of? The answer is a resounding no.

 

I find it funny how the W.H and liberals are now changing their definiton of success. Before it was a measurable goal of not allowing unemployment to reach over 8%. Now that it missed the mark in a huge way, they are re defining success as "If the stimulus bill hadn't of been created, we would be in a depression and unemployment would of reached 20%"

 

Sure, no one can say what it could have hit had the government not acted. In a presentation shortly after the crisis, I predicted it would not hit the Reagan/Volcker high (10.5%)precisely because policies were trying to prevent instead of cause a recession this time.

 

Yes, it is impossible to know what we couldn't know--the "what if" scenario. We are both making guesses about a what if scenario. The difference is I understand I am making a guess, you don't. Without intervention on the demand side, it's quite possible a debt-deflation spiral could've wreaked havoc. The real issue is what probability I'd give to that scenario.

[GG]

I spelled it out pretty clearly regarding the "Moral hazards". If you don't see it, then what more can I tell ya? Also, in regards to it's objective, as I said, it depends on how you define success. If you want to define it as helping stabilize the markets ST, then yes, it did help. In regards to the overall impact will not be able to fully and fairly judged until the next credit cycle comes about, until then we won't know. However, we do know that it has worsened to the foreclosure crisis and we also do know that it didn't increase bank lending.

 

And yes, lending was part of it's objective of TARP

 

I think the point is that moral hazard will forever be intertwined as long as you keep the financial system regulated.

 

Funny how you accuse me of arguing for no regulation of the financial sector, yet you're the one crying about the moral hazard? Sorry, that view is incompatible. Either you believe in regulation, which carries moral hazard as part of the bargain, or you loosen regulations and let the market dictate everything and ride the speculative wave that unfettered financial institutions bring with them. Pick a side. You can't have it both ways.

[Rob's House]

 

Yes, it is impossible to know what we couldn't know--the "what if" scenario. We are both making guesses about a what if scenario. The difference is I understand I am making a guess, you don't. Without intervention on the demand side, it's quite possible a debt-deflation spiral could've wreaked havoc. The real issue is what probability I'd give to that scenario.

I appreciate you conceding that your analysis of what would have been without the "stimulus" was a speculative shot in the dark.

[GG]

I appreciate you conceding that your analysis of what would have been without the "stimulus" was a speculative shot in the dark.

 

At the time, it was about as speculative as a shot in the dark while John Goodman is wearing night goggles and the barrel is resting on the temple of the target.

[Magox]

Sure, no one can say what it could have hit had the government not acted. In a presentation shortly after the crisis, I predicted it would not hit the Reagan/Volcker high (10.5%)precisely because policies were trying to prevent instead of cause a recession this time.

 

Yes, it is impossible to know what we couldn't know--the "what if" scenario. We are both making guesses about a what if scenario. The difference is I understand I am making a guess, you don't. Without intervention on the demand side, it's quite possible a debt-deflation spiral could've wreaked havoc. The real issue is what probability I'd give to that scenario.

In regards to the bolded part up above, that is a nonsequitur, because the real unemployment rate is much higher today than it was back in 80-81. The amount of discouraged people that have dropped out of the workforce has distorted the official unemployment rate. What is worse, a higher unemployment rate with more people looking for jobs or a lower offical unemployment rate with a higher real rate due to discouraged workers? Today's unemployment is much worse than what we saw in the early 80's.

 

ANd in regards to the underlined part up above, well, you said:

 

So, yes, I do support deficit stimulus under these severe circumstances because the alternative would've been 20% unemployment in addition to significant debt accumulation.

 

The key word is "would've" , would have

 

doesn't sound like a guess to me, sounds like you are making a statement.

 

I think the point is that moral hazard will forever be intertwined as long as you keep the financial system regulated.

 

Funny how you accuse me of arguing for no regulation of the financial sector, yet you're the one crying about the moral hazard? Sorry, that view is incompatible. Either you believe in regulation, which carries moral hazard as part of the bargain, or you loosen regulations and let the market dictate everything and ride the speculative wave that unfettered financial institutions bring with them. Pick a side. You can't have it both ways.

Incompatible? I am not against loosening of regulations, let's not assume that all regulations are created equal. YOu have seen me post here regularly hammering the W.H's approach to nonsensical regulation. And no, I don't have to pick aside, some regulations are stupid and some are necessary. Sorry, I don't prescribe to the Black or White philosophy of life.

[TPS]

In regards to the bolded part up above, that is a nonsequitur, because the real unemployment rate is much higher today than it was back in 80-81. The amount of discouraged people that have dropped out of the workforce has distorted the official unemployment rate. What is worse, a higher unemployment rate with more people looking for jobs or a lower offical unemployment rate with a higher real rate due to discouraged workers? Today's unemployment is much worse than what we saw in the early 80's.

 

ANd in regards to the underlined part up above, well, you said:

 

 

 

The key word is "would've" , would have

 

doesn't sound like a guess to me, sounds like you are making a statement.

 

 

Incompatible? I am not against loosening of regulations, let's not assume that all regulations are created equal. YOu have seen me post here regularly hammering the W.H's approach to nonsensical regulation. And no, I don't have to pick aside, some regulations are stupid and some are necessary. Sorry, I don't prescribe to the Black or White philosophy of life.

Are you saying that there weren't discouraged workers back in 1981-2? And if it's larger now, care to guess the difference... :-)

[Magox]

Are you saying that there weren't discouraged workers back in 1981-2? And if it's larger now, care to guess the difference... :-)

Of course there were, but not nearly what we are seeing today. And yes, I would have to guess considering that they didn't track that number, however there were other stats, such as the length of time of the umemployed. Today's number is over 24 weeks which is nearly 6 months, that is double the prvious post-world War II peak of 12.3 weeks in 82-83. This would strongly indicate that the number of discouraged people dropping out of the workforce is much higher today than what we saw in the early 80's.

 

[GG]

Incompatible? I am not against loosening of regulations, let's not assume that all regulations are created equal. YOu have seen me post here regularly hammering the W.H's approach to nonsensical regulation. And no, I don't have to pick aside, some regulations are stupid and some are necessary. Sorry, I don't prescribe to the Black or White philosophy of life.

 

In financial regulation there is a black & white. Regulate and accept moral hazard as part of the bargain, or drop regulation and let the industry decide its fate.

[Magox]

In financial regulation there is a black & white. Regulate and accept moral hazard as part of the bargain, or drop regulation and let the industry decide its fate.

Nope, I don't see it that way whatsoever. As I said, not all regulations are created equal.

[GG]

Nope, I don't see it that way whatsoever. As I said, not all regulations are created equal.

 

ok, then who gets to decide statutory capital, who decides how big "too big" really is, how do you prevent a private company from becoming too big, what criteria do you use, how do you peek inside wholesale transactions to ensure there's no systemic risk? How do you balance out a regulator out to protect national interests at the expense of foreign parties?

 

Once the financial regulator starts getting in the middle, then he's going to be thrust into a position of picking sides when the next bubble bursts and investors know that the regulator will pick a side. The only question that will remain is which investors get wiped out and which ones will be made whole.

 

Moral hazard is a nice topic for an academic at a think tank.