The New York Times 05/20/12
Gretchen Morgenson
“Seeing Bailouts through Rose Colored Glasses”
THE multibillion-dollar trading loss at JPMorgan Chase has
revived the idea of paring down banks that are too big to manage. That’s a good
thing, if we ever hope to get off the boom-bust-bailout track
As the battles over financial regulation rage in Washington,
it’s crucial that American taxpayers understand the costs associated with
rescuing behemoth institutions. Getting a straight answer on this question can
be tough, given the politics now surrounding the bailouts that occurred in
2008.
The total cost of those salvage efforts isn’t yet known. The
problems at the mortgage giants Fannie Mae and Freddie Mac have not been
resolved, and the taxpayers’ current $151 billion bill will undoubtedly shift
in size.
Nevertheless, an accurate accounting of the 2008 rescues
should include the value of the bailout subsidy provided by the taxpayers, as
well as a hard-nosed cost-benefit analysis. Unfortunately, neither was included
in a recent United States Treasury analysis of the various rescue programs,
including TARP.
AN even larger problem with the Treasury analysis, Mr. Kane
said, is its failure to calculate the value of the subsidy that taxpayers
provided to rescue recipients. “You would not pass Economics 101,” he said, “if
you didn’t understand the opportunity
costs involved in providing the subsidy.”
Timothy G. Massad, assistant Treasury secretary for
financial stability, said: “We believe
the fact that we took strong, forceful action resulted in us preventing
significant economic costs, including the risk of a second Great Depression.
But a specific counterfactual analysis is something that can be done in a
variety of ways, and for the government to endorse one particular approach is
not something we think is appropriate in this case.”
Charles W. Calomiris, is a professor at Columbia Business
School, as well as Columbia’s School of International and Public Affairs, and a
research associate at the National Bureau of Economic Research. He worked with
Mr. Kane on the critique of the Treasury’s analysis and said in an interview
last week: “Pretending that when
providing these subsidies all you have to do is get your money back and not get
an adequate return accounting for risk — that is not a good accounting for
cost.”
Another problem with the Treasury’s presentation is that it
does not give taxpayers a cost-benefit analysis. “We are not saying that the
benefits weren’t there,” Mr. Calomiris said. “We’re not saying that it wasn’t
worthwhile to create these programs. Maybe it was, maybe it wasn’t. But it
requires a fuller analysis of what the benefits were.”
Common Sense Review
As the govt review the need for regulation of the free
market risk for financial institution, they are not taking responsibility for
their own financial fiasco. Anyone… “Pot/Kettle”?
Arg! Once again the govt , in their infinite wisdom, think
the citizens are ignorant. This idea
that govt has the ultimate knowledge over all thing financial is seen in Mr.
Kane’s comment “opportunity costs involved in providing the subsidy.” Wow, Mr. Kane we are not in a bar and you
are not trying to pick me up… quit lying..
Opportunity to provide subsidy is sideways talk of wealth
distribution. Due to the fact that the
American’s who work hard and provide for their families can (in govt eyes)
provide for all….
If the govt would quit being the Mrs Kravits (Bewitch’d
reference) of the financial world, the economy (after a rocky time) will settle
itself out.
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