Yesterday, Bob Reich argued that what the administration needs to do now is ask Congress for more stimulus funding, rather than further money to backstop the financial system, since convincing Congress to authorize another large chunk of money for the economy, much less two large chunks, will be extremely difficult. With demand still a problem, Reich takes the position that further economic stimulus must be the priority. But some interesting news might make the argument somewhat academic: There may be quite a bit more money left in the TARP fund than the $135 billion Treasury says remains.
Josh Zumbrun took a close look at the books and found that though a good deal of the money has been committed to various programs, much less has been spent -- for instance, only $199 billion of the $250 billion earmarked for capital injections to banks has been spent; only $6 billion of the $100 billion the Treasury committed to the TALF program has been requested (and some of that comes from the Fed); and now it seems that some banks are intent on repaying the funding they received from the government. Over all, by the end of March, the $700 billion in the original TARP appropriation, only $293 billion has actually been spent.
There's good news and bad news. The good news is that Treasury Secretary Tim Geithner has more room to work and that taxpayers may be saving money. The bad news is that the ultimate cost of fixing the financial system is going to be much higher than whatever remains in the TARP funds; the kind of government-mandated restructuring and bankruptcy that many economists believe will be necessary to finally solve the problems of the financial industry could cost $1.5 trillion. In his speech yesterday, Barack Obama recognized this problem:
We believe that preemptive government takeovers are likely to end up costing taxpayers even more in the end, and because it is more likely to undermine than to create confidence. Governments should practice the same principle as doctors: first do no harm. So rest assured – we will do whatever is necessary to get credit flowing again, but we will do so in ways that minimize risks to taxpayers and to the broader economy.
"Preemptive" is the key word there. The administration knows it may need to take on the banks, but they'll exhaust more cost-effective options before they move to the final step. With the much-maligned stress tests said to finish up at the end of this month, alongside the launch of the public-private market to purchase troubled assets, we'll have a clearer idea of how close we are to broader intervention in the financial system.
-- Tim Fernholz
