On October 3rd, 2008, President George W. Bush signed into law TARP i.e. the Troubled Asset Relief Program consisting of $700 billion to bailout fledgling banks and auto companies. TARP continued with slight alterations under President Obama’s presidency. Propublica (www.propublica.org) claims to have kept track of every single dollar of the bailout since then. At the time, it was heavily criticized as unnecessary government intervention; the costliest since World War 2. However, two and a half years later, its success is becoming more and more apparent.
USA Today on February 23, 2012 posted an editorial on their website (www.usatoday.com) titled Editorial: Auto bailout worked, candidates should admit it. The editorial speaks about how politicians find it difficult to admit mistakes. The editorial mentions President Obama’s opposition to President Bush’s troop surges in Iraq, but admitted later it worked. However, one thing to keep in mind is that Obama’s admission did not alter his opposition to the Iraq war altogether. Obama had opposed the war right from its onset calling it a “dumb war.”
Back to the issue of bailouts, the editorial piece mentions that one of the key bailout recipients, GM sold more vehicles last year than any other automobile manufacturer in the world. Moreover, it added 207,000 jobs last year. GM has returned to profitability and it has repaid its loan to the U.S. and Canadian governments. Chrysler, another key recipient also returned to profitability and has repaid its loans. Most other recipients have also repaid their loans. The editorial puts forth a very important and key argument in defense of the bailouts’ successes. It states,
And the cost to taxpayers has been far less than it would have been had the companies collapsed and the government was forced to partially bail out their pension funds, as well as pay for unemployment benefits and other assistance to displaced workers.
I believe the above is the most effective and persuasive part of the argument in favor of the bailouts.
The two leading candidates for the Republican nomination on the other hand vehemently continue to criticize the bailouts. While admitting that a government bailout is not a good thing and should only be a last resort, the editorial states that their criticism and arguments against it reflects how poorly connected they are to reality. Rick Santorum argues that all the fledgling companies would have survived without any bailouts. Romney argues that the government should have insured loans provided by private companies instead the government directly lending to them. The editorial argues it is highly unlikely that any of these options would have worked.
On the other hand, however, the government did lose quite a bit. The government lost 1.3 billion in its investment in Chrysler because it sold its 6% stock to FIAT at a 1.3 billion loss. The government would suffer a 13 billion loss if it was to sell its stock today. However, despite all this, it is about time the two leading Republican nominees admitted the effectiveness of the decision upheld by the Obama administration.
USA Today has also published an editorial consisting of an opposing view titled Opposing view: Auto bailout leaves a dangerous legacy. Only in Washingtoncan you call losing billions a success. This editorial claims that though some successes are apparent, these successes are overshadowed by the fact the government has set a very dangerous precedence of government intervention; a concept antithetical to democracy and capitalism. The editorial maintains that if all companies went through the proper bankruptcy avenues provided by law, the outcome would have been much better, and additionally, the values of democracy and capitalism would not have been compromised. The editorial concludes with the following admission:
No one knows precisely what would have happened had policymakers pursued a less interventionist road. But the road that was chosen — putting politicians in the driver's seat of a major American industry — was the more dangerous. "Successful" or not, it's no model for the future.
