No Major Country Had a Financial Collapse

The NYT has an article on President Obama's turn to a more populist stance on Wall Street. At one point the article notes criticisms that Treasury Secretary Timothy Geithner and Larry Summers, the head of the National Economic Council, were too friendly to Wall Street banks. It reports that Obama "believed they [Geithner and Summers] had not received credit for stabilizing a financial system that by all accounts was on the verge of collapse when the president took office."

It's not clear whose accounts this statement is referring to: presumably the accounts of economists who could not see an $8 trillion housing bubble. It is worth noting that no major country saw a collapse of its financial system in this crisis, so there was apparently nothing unique in the abilities of the Geithner and Summers in this area.

Preventing the collapse of the financial system should probably seen as being comparable to a major league outfielder catching a long fly ball. It's not that easy, but major league outfielders do it.

In asserting that the TARP money has been repaid the article is overlooking the money lost by Fannie Mae and Freddie Mac which may now exceed $400 billion. These losses were the result of paying banks too much money for bad mortgages. In other words, the losses of Fannie and Freddie were money given to the banks. Much of the money paid out under the $70 billion designated for the HAMP program (the program to help homeowners stay in their homes) also is in effect money paid to banks. So, even if the TARP money were repaid in full, the banks would still have received hundreds of billions of taxpayer dollars in the bailout.

--Dean Baker

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