> It cost the taxpayers nothing (in fact it made us money)
Pull the other one, it has bells on it. If the government is involved in a financial transaction it is because nobody in the private sphere with money wants to be involved. That means either the return wasn't commensurate to the risk or there was dodgy accounting going on that nobody would actually thought represented a reasonable real return. If there was actually a prospect of making a reasonable return, money would have been found. Even the creditors might have been willing to make deals.
I bet the average taxpayer would much rather have the money given to them in their capacity as an individual and would have profited off it more than the hypothetical return the US government may claim it made.
> What part of that are people mad about, and why?
The gross unfairness of it all. I mean, it is bad enough that the failures in charge of the banking system got bailed out despite being incompetent at their jobs, but the average person had to guarantee them their high status role in society? It is a sick joke.
It is a terrible idea to be printing money to prop up asset owners. If that is the basic plan anyway, it shouldn't be mandatory to have incompetents mediating the handout process.
And it isn't like bankruptcy is that terrible. All the physical assets still exist. There is still food. Maybe set up a special welfare system for people who lost their life savings if something has to be done, but for heavens sake, taking (and I repeat myself) known, verified incompetents and guaranteeing them ongoing control of the financial system is wildly stupid. It is on par with a scheme like mandating people all buy in to cryptocurrencies.
We don't know what the other options look like. A broader collapse of the economy, runs on banks? If the government stayed out then the outcome could have been worse for the average taxpayer.
I do agree it looks bad if bankers can take huge risks and benefit (personally) from the upside without a downside risk. But it's not necessarily the bailout that's the problem here and the taxpayers do have the theoretical power to vote for people who can change this.
> We don't know what the other options look like. A broader collapse of the economy, runs on banks? If the government stayed out then the outcome could have been worse for the average taxpayer.
What courses of action does that argument not justify? "We had a predictable emergency and decided to panic and hand out money. Don't expect us to really think about alternatives." is not the course of action that really speaks to me for getting good results for taxpayers, or anyone except the people directly getting the money.
We have a playbook for getting a statistically good outcome when people run out of money. It is called bankruptcy. I can see how a banker could confuse that with a bailout because they both start with a "b" and there are a lot of letters - but the stark truth is they are different words.
But the issues here were systemic and there was worry of contagion. I guess a question would be whether the people who made the decision had conflicts of interest that impacted those decisions.
So this argument doesn't justify any course of action but is does justify a course of actions with poor optics that seems reasonable given the risks.
> The gross unfairness of it all. I mean, it is bad enough that the failures in charge of the banking system got bailed out despite being incompetent at their jobs, but the average person had to guarantee them their high status role in society? It is a sick joke.
This is a very valid narrative, although if you say it in public people will call you a socialist. It applies to people like Fred Goodwin of RBS (eventually stripped of knighthood) and Sean Quinn of AIB (who did actually serve jail time).
> And it isn't like bankruptcy is that terrible. All the physical assets still exist. There is still food
I think you're really underestimating how terrible "retail banking stops functioning" would have been in the short term. The loans allowed the problems to be addressed over the medium term. "Every retail bank has ceased trading" is a problem you have about three days to solve before the inability of people to buy food and petrol starts a much larger collapse.
Besides, some of the bailouts were very close to "flat-pack" bankruptcies. Northern Rock and Bradford and Bingley were fully nationalized! Equity holders lost everything, that's a bankruptcy!
(Americans will say "who" there, but again: it was a global crisis. It more resembles climate change. It's very difficult to say that any individual is responsible for it, but somehow Australia ends up on fire as a result of unsustainable emissions, and the banking system collapsed as a result of unsustainable lending emissions.)
So your argument to the valid narrative of gross unfairness and people being above the law is to look the other way because you are afraid of being called a "socialist"? Holding criminals accountable for bad and reckless behavior is not socialism by any definition of the word.
It's not my solution, I'm not in charge of the SEC! I'm broadly supportive of anti-inequality measures against the financial industry. It's just that if you say that the peanut gallery will call it socialist.
I would however like people to be a bit more specific about what they think the crime was, who specifically committed what, and whether it was actually illegal at the time. It's a word people love to throw around. It's not actually illegal to make poor business decisions.
https://en.wikipedia.org/wiki/Se%C3%A1n_Quinn for example, while his misconduct cost the collapse of AIB, the thing he was actually jailed for was failing to comply with court orders.
> either the return wasn't commensurate to the risk
It's because the markets were frozen up; I was actually alive then and you can't really gaslight me about this
what does "frozen up" mean?
Corporate bonds were simply not being bought, at any price. Same with commercial paper. Nobody knew what firms were going to still exist in a week so nobody was willing to lend any money at all.
> Nobody knew what firms were going to still exist in a week so nobody was willing to lend any money at all.
Perhaps I'm misunderstanding, but isn't this another way of saying it was too risky for people to invest? That seems to be the same concept as the quote you cited from the parent comment: "either the return wasn't commensurate to the risk".
I guess you could say that but the underlying problem was that the risk was entirely opaque so it couldn't actually be quantified and hedged against. The TARP loan ("shakedown" might be a better term honestly) gave financial firms time to sort out what their actual positions and exposure were; there wasn't time to let the market sort that out over months and at the cost of every major company (even non-financials) failing because of lack of access to credit.
Yeah it seems there's a bit of asymmetry between a normal lender and the federal government here where as a normal lender you might not be able to lend enough to guarantee the debtor survives. Also what the gov decides to do may significantly influence the lender's behavior. If the lender thinks there's a chance the gov will bail them out, they would probably prefer that and not give a loan.
Whereas the federal government can write a check for $633.6 billion and be much more certain the debtors will survive and pay it back.
So the government has negotiated from a position where the average taxpayer could be buying $10 worth of assets for $1 and have a go at managing it properly and creating some wealth, to a position where the taxpayer pays $1, the government buys the $10 in assets and gives it to some wealthy idiot, and there is a nominal return which at that time I imagine went into killing people in Iraq because Muslims, amirite? All those bombs cost a bomb.
And then we see 20 good years of economic prosperity where the US predictably got even wealthier than it previously was and there is great political stability and well-loved presidents like Mr Trump who represent the satisfaction US citizens feel for the economic highs they have reached!
What a fantastic deal for the average taxpayer. Let the confetti fall. Well done government, saved the day there.
Where it went was bailing out the automakers. It was a big story at the time and I'm starting to worry people just don't form long-term memories anymore.
Who are you going to believe, your own memories or present-day propaganda on social media?
> the US predictably got even wealthier than it previously was
If you just look at the economic indicators, then it did. Certainly way better than the "no intervention" counterfactual would have gone. People do not like it when all the ATMs stop working.
There is a lot of discourse to be had as to why people aren't feeling that personally.
> killing people in Iraq because Muslims, amirite? All those bombs cost a bomb.
Sadly there is/was massive bipartisan support for this bullshit. Including from the public. I note from a chronology perspective that most of the money in Iraq was spent/lost/wasted before 2008.
The problem is circular. The risk is that your counterparty goes bust. Therefore nobody wants to make any moves until they can be sure that (mostly) every other player is stable. But because no moves are happening, that in itself is destabilizing.
That is, the big risk is "what if the state doesn't intervene?"
Correspondingly, the state has a special move that only it can play, because "what if the state doesn't intervene" is not a risk to the state itself. The act of intervening makes the risk go away. That's part of the privilege of being the lender of last resort with the option to print currency.
(which is why this was a much more serious problem for Greece and Ireland, which as Eurozone members were constrained in their ability to even contemplate printing their way out of the problem!)