Imagine yourself George Bush, the president of the United States of America, and the chairman of the Federal Reserve Bank and your Secretary of the Treasury walk into your Oval Office and say, Mr. President within hours the entire financial structure of the world will implode and we will be cast into a depression, millions of Americans will be thrown out of work, misery and deprivation will be widespread unless you move immediately to rescue these banks."
Here is a reply I wrote at the time that is, September 9, 2008 which calls for a certain amount of humility in judging whether or not TARP should have been implemented. Let's judge the call and the players involved in that short timeframe according to what they knew or should have known.
Here is the reply:
I have not yet posted on the wisdom of the bail out because, frankly, I do not know what to say. I do not know what to say because of the things I do not know. First, I do not know if the bailout plan will work. Second, I do not know if the entire world system will crash without such a plan. Third, I do not know what the odds are of either a successful bailout or a world crash so I cannot weigh the severity of potential harm against the likelihood of the harm occurring.
I know what my ideology is, I am opposed to government meddling in the economy on the way up and on the way down either by picking winners or by rescuing losers. On the other hand, I recognize the extreme danger to the very survival of my ideology should the country descend into a depression. I am well read enough to know about the Great Depression and what it did to other democracies around the world and how close our own American democracy came to descending into communism. So, I do not know in which direction lurks a greater danger to the ideal of conservatism.
I do know that the Constitution as written prohibits virtually every facet of the proposed bailout plan. I know that no federal court that I can think of will conceivably declare any part of the plan to be repugnant to the constitution. Therefore, I know I cannot rely on the courts to protect the Constitution. However, I also know that the political will will triumph regardless of the Constitution and it is bootless to fall on one's ideological sword to no purpose.
I do not know what it is like to live through a depression although my father has described what it was like in the rural South when people literally had no money and had to contrive a barter economy. On the other hand, I do not know what it is like to live through a raging inflation such as was sustained here in Germany during the Weimar and even today in Zimbabwe. I do not know if doing nothing will generate a depression. I do not know if these bailouts will generate hyperinflation.
I do know that if abandoning my ideology long enough to countenance the bailout would save the country from a depression, I would do it in a heartbeat.
I am not sure that those people on these threads who on claim to know the answers to all these questions really know what they're talking about. I do not know if they are so sure about their facts only knew because they are so certain in their ideology. I do not know all if those people who are so certain in their bailout do so because otherwise their ox gets gored. So I do not know how to come down on one side or the other based on the motives of the partisans on either side of the bailout question. I simply do not know what their motives really are.
I do know that economics is called the dismal science and now I know why.
Given the state of my ignorance, I am going to embark on a new course, I am going to practice humility.
I think we have to keep clear in our minds the difference between TARP and subsequent bailouts implemented by Obama which were designed to advance his ideology and himself personally. TARP was an emergency measure and the parties were entitled to believe they were in an emergency situation.
The bailouts were clearly no longer an emergency situation but they were deceitfully sold as such, Obama telling the world that they did not pass his bill by Friday the world would end. Tarp was a stopgap to avoid economic and financial collapse and the bailouts, although sold like TARP, were measures to accelerate recovery. I believe that both the men involved and the policies they implemented should be judged differently.
If one insists on judging the matter in hindsight, one should consider the cost of TARP as a few hundred billion dollars, which I understand has been paid back, against disintegration of capitalism. Strange to say, and perhaps shocking, but since then a few hundred billion dollars is what we have squandered on Solyndro and offshore drilling for Brazil and this gigantic sum now seems trivial by comparison.
To this day we do not know whether tarp was necessary but we do know the costs versus the downside risk.
