The U.S. Treasury this morning rid itself of the last piece of exposure it had to AIG, the insurer at the centre of the 2008 financial crisis. Both the Fed and the U.S. Treasury intervened heavily during the crisis, with the ostensible objective of stabilizing the system and circuit-breaking the self-reinforcing fear that was already rippling through the financial system.As of today, taxpayers have been fully repaid. The Treasury reports a combined profit of $22 billion. Detractors have been quick to suggest/insinuate/allege the number isn’t real, the Treasury portion lost money, the government is making the number up, etc. When really pushed they nit pick at accounting concepts, broaden the argument, or bring up other second-order issues.
What one has to keep in mind is many if not most of these detractors also claimed that the government’s intervention in AIG and other financial entities would not be effective in its basic objective of stabilizing markets.
The most common phrases were “$700b down a rat hol,;” “bad money after good.” Pointing out that the money was loaned only served to damage the credibility of the person foolish enough to trot out the argument. It was a given that the money would be all lost. The only debate was over whether it would bring stability to the financial system.
As stability appeared, the argument evolved (i.e. goalposts moved). Those who once argued that it wouldn’t stabilise the system started shifting to discussion of the burdensome cost to the taxpayer. Once it became clear TARP would turn a profit, detractors alleged accounting games or invoked broader costs from Fannie and Freddie.
The bottom line is this: It worked wildly better than anyone could have hoped for — even for those of us who thought at the time it was the right course of action. Markets were stabilised, the private sector banking system was recapitalized at the end of the day with private sector money, and the U.S. taxpayer pretty much got it for free — whatever you think the final bill will turn out to be. Anyone still trying to move the goalposts should be gently reminded that reality disagrees.
So, go ahead. Today is the right day to say it. Thank you Tim Geithner. Thank you Ben Bernanke. Thank you Hank Paulson. We were wrong. You were right.