A little more than a year ago the Obama administration announced a scheme to help mortgage borrowers in trouble, in which the loans would be modified in a way that would make the terms more affordable. I thought it was unlikely to work as promised and said so at the time. The plan was greeted with some widespread skepticism, although a lot less than I thought was warranted.
At the time, I assumed that what lukewarm enthusiasm it did garner from the media was due to a bias in favor of government intervention in general and this administration in particular. Now I am not so sure. I think it may be that the journalists charged with explaining the scheme to others did not really understand the fundamental flaws so obvious to so many of us.
The latest update on the plan’s progress in the New York Times repeats what has become a recurring theme, that the scheme is at least an order of magnitude less effective than envisioned. But read the text closely and you get the impression of true disappointment and surprise at this failure. The piece contains not a hint of discussion of why the plan failed, as if it was a unfathomable act of nature, rather than something that many thoughtful people accurately predicted from the start. And it ends with finger pointing.
The Treasury is being accused of moving the goalposts a bit. It now says its intention was merely to offer help to those four million borrowers, not to make sure they actually got it.
Except that even a year ago the Treasury was using phrases like “reach up to 3 to 4 million” rather than “will help 3 to 4 million” a not particularly subtle distinction some of us picked up on at the time.
And it is not just the Making Home Affordable program that has turned out in a way that seems to surprise the media. In January the AP reported the shocking news that stimulus spending on road projects did not, in fact, help the local unemployment rate. Who knew?
But it seems that the biggest shock, one that has still not fully sunk in because it runs so strongly against the popular narrative, is the fate of the TARP, a.k.a. the Great Wall Street Bailout.
If history remembers TARP at all, it will be remembered as the bailout that wasn’t. As early as last summer it was becoming clear to those willing to listen that the core TARP programs, those aimed at helping banks, were likely to turn a profit for the taxpayer, just like Hank Paulson said they would. Today, not only does it seem that the help given the banks was a shrewd deal for Uncle Sam, even the black hole that was AIG is looking comparatively good. The latest projections are that the Treasury may get back as much as $170 billion of the $182 billion it gave AIG. That is still a loss, but it is much less than what has been widely reported as the cost to the taxpayer of AIG and is practically rounding error in the context of some other government programs enacted in response to the Great Recession.
In popular consciousness, the Wall Street Bailout was simply the handing over of great big sacks of money to the people who least deserved it, much like a parent would reluctantly pay off a college student’s credit card. That is a powerful story and one the media could not resist, partly because it is just so easy to explain. But when all is said and done, it turns out Wall Street more or less paid its own way after all.
This is not something that has been discussed much. I don’t think this is because of a political bias. (If anything, you would think that left-leaning types would want to trumpet this as another example of a successful government program.) I think this has gone under-reported because of the stupefying shock involved. This scenario just wasn’t a possibility in the simplified story the media told us, and told themselves, about the Wall Street bailout.
In retrospect, it is clear, and unsurprising, that the people responsible for explaining it to us never fully understood the financial crisis to begin with. Why the banks suddenly needed the money and what they would do with it were a complete mystery. So the media seized on the first explanation they could get their heads around and next thing you know there is a populist uproar over banker compensation and calls to give money to GM and Chrysler because, after all, it is only fair after giving ten times as much to Wall Street.