Friday, April 30, 2010

Lying About Bailouts

Republicans have made a lot of political hay over the claim that the bank bailouts never posed systemic risk.  They don't spend a lot of time providing an argument for this claim - most likely because it's so indefensible.  They just skip to the logical conclusion that anyone who supports bailouts wants to waste taxpayer money buy giving it to greedy Wall Street.  This also plays into the idea that Democrats don't want anyone to ever fail because they are, well, pansies. 

Of course, TARP was enacted by Bush, but he can be written off as not a "true believer".  The important thing is that future bailouts will never be necessary because there is no such thing as systemic risk.

Jon Chait argues that systemic risk would always require a bailout, and any sane administration - whether Republican or Democrat - wouldn't hesitate to come to the rescue.  Yet by sticking to the dishonest claim that systemic risk can't happen, Republicans get to have their cake and eat it too:
The only answer to the dilemma is to try to prevent systemic failure from happening in the first place, which is the purpose of financial regulation. But this is the genius of the "bailout bill" charge. You can't honestly promise that any regulation, however well-designed, can guarantee that no bailout will ever happen again. And when you try to address the "bailout bill" charge on its own loopy terms, you wind up lending it credence.

This is no different than the Republican tactic on most issues: take a false or dubious premise and run with it.
  • Global warming - doesn't exist so Democrats are just trying to scrounge up tax revenue.
  • Immigration - it's an existential threat so we need to limit rights and expend vast resources, and Democrats actually favor illegal immigration.
  • Supply side economics - cut taxes on the rich and slash spending because the increased growth will ultimately increase tax revenues.
  • The stimulus - Keynes who?, Democrats are recklessly spending and that's just what they do.
  • The bailouts - institutions didn't pose systemic risk so bailing them out was simply a handout, a socialist takeover of the banking industry even.
So if the bailout was unnecessarily before, it will be in the future. This is an outright lie. And any Republican president in the future will bail an institution out in a heartbeat. But if you pretend there was no systemic threat, you can accuse Democrats of wanting to pay banks billions.

Republicans kind of lucked out on the timing of the crisis. Because TARP happened so close to the inauguration, they managed to sell idiots the lie that Obama was responsible for the bailout. If this had happened even a year earlier, it would have been a lot tougher.

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