Over at Vox, there’s a nice post on how TARP has turned allegedly turned a profit. But when I went over to the US Treasury website Troubled Asset Relief Program page, and read through some of the reports they’ve produced on the matter, I’m not sure that Vox is being clear enough here about what those figures actually mean when you start thinking about how this money was mainly disbursed in 2008 and 2009, but has been repaid over time.
Claiming to have made a trivial profit relative to the enormous amount of capital deployed into an industry that lost a lot of money on bad investments isn’t prudent. $15 billion / $426 billion over 5 years is a lower return for the US Treasury than buying their own product (bills, bonds, notes) and holding them on their own balance sheet as Treasury stock.
For all of the time that this capital was deployed recapitalising failed firms and acting as a vehicle for stimulus, there was some next best alternative foregone. For example, upgrading long deferred infrastructure upgrades and maintenance in the US could have provided substantial fiscal stimulus and achieved many of the things that TARP boosters claim to have aided in ensuring like a really slow, grinding recovery from the GFC.
But that’s not what happened, and the economic literature is quite clear that the long term impact of graduating into a recession permanently lowers lifetime earnings for college graduates. When you add in the growing level of under-employment and frustration around the distribution of opportunities in the economy, the past few years have spawned a non-trivial number of 20-30 year olds who are absolutely furious about how things have turned out for them. That doesn’t bode well for anyone who prefers market based solutions to problem solving via the price system.