Counterparties: The bailout according to Treasury

April 16, 2012

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The Treasury Department is out with a new presentation on the bailout, which attempts to calculate the combined costs of the crisis-era bailouts, including TARP and actions by the FDIC and the Fed. If you think Treasury’s accounting is even directionally correct, the presentation has some very good news: The bailout cost less than expected, averted a deeper crisis and may even turn a net profit.

It’s a convincing case that rescuing the financial markets was necessary. But that’s much different from saying the bailouts were perfectly executed.

This is a document about a messy collection of programs. Which is why we get things like this convoluted slide intended to illustrate how the government’s myriad financial arcana helped individual Americans.


This chart is the crux of Treasury’s problem: If you’re trying to convince Americans that things could be much worse than our 8.2 percent unemployment, protracted foreclosure crisis and fragile recovery, it helps if you can tell a simple story. And this is not a simple matter.

Contrast Treasury’s take with another regulator’s. Sheila Bair, who was head of the FDIC until last year, has criticized the Fed’s zero interest rates as a huge subsidy for financial companies but not for average Americans, and has slammed what she sees as a growing “too big to fail” problem – which explains her reported refusal to agree to Geithner’s 2008 request that the FDIC guarantee literally all debt issued by bank holding companies.

It’s telling, then, that the gray line labeled “Financial markets” in Treasury’s chart reaches into each and every aspect of “crisis response that helped support families and business.” More than three years on, Treasury still can’t shake the perception that this was a bailout that focused too heavily on the financial markets.

Treasury’s slides suggest a host of markets – including commercial and industrial lending, bank capital and credit cards – are higher or nearly back to pre-crisis levels; the middle class hasn’t been so lucky.

And on to today’s links:

British businessman reportedly poisoned after threatening to expose Chinese leader’s wife – Reuters

How to tell your son that you’re a short seller – Bronte Capital

Income inequality is growing – even for lawyers – WSJ

Why Kodak could never invent Instagram – NYT

Primary Sources
World Bank selects Jim Yong Kim as new president – World Bank

Ezra: eliminating a few tax deductions does not add up to a real deficit reduction plan – WashPo

Rhetoric Meets Reality
Too-big-to-fail banks are larger now than before the credit crisis – Bloomberg

Modest Proposals
Sheila Bair: $10 million loans for every American – WashPo

“The end of 2012 will be unlike any other time in memory for the federal government” – NYT

7-Eleven targets New York’s bodegas – Daily News

Americans sought homeownership but got debt ownership – Math Babe

Goldman sells $2.5 billion stake in ICBC to Temasek – Dealbook

It is private equity, but the public has a right to know – WashPo

EU Mess
Top European banks expecting ratings cuts – WSJ

Yield on Spanish bonds rises above 6 percent – WSJ

Mas Kapital
Biggest European banks would need to hold 17 percent core capital under EU plan – Bloomberg

Banks are worried FHFA may finally consider principal reductions – The Hill

Big Numbers
Facebook controls 28 percent of the display ad market – Mashable


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