Thursday, October 21, 2010

Well-managed bailout creates returns to help reduce the deficit

By Rhonda B. Graham
Wilmington (Del.) News Journal

The Bush Administration's solution to the economic meltdown of 2008 was more harshly assailed in the Obama White House. The use of bailouts for failing banks, auto and financial services companies is still cast as proof of a master Obama plan for transforming America's market-based economy into another experiment with socialism, ala Venezuela's Hugo Chavez and company.

But as it turns out, TARP got taxpayers higher returns than they could
have made buying 30-year Treasury bonds.

"We had essentially a line of credit of $700 billion that could be used in an emergency," said the president.

The government has earned $25.2 billion on its investment of $309 billion in banks and insurance companies, an 8.2 percent return over two years, according to data compiled by Bloomberg News. The news agency estimated those returns on investment are "enough money to fund the Securities and Exchange Commission for the next two decades."

So sitting in the Roosevelt Room of the White House last Friday, I wondered why the president hadn't made more of a big deal of this success with a promise of targeting the nation's debt with the TARP profits.

In such a divisive midterm political environment, it could be an olive branch to the new fiscal conservative enthusiasm sweeping the country.

I posed the idea to him just before he and Vice President Joe Biden helicoptered into Wilmington for Chris Coon's Senate rally. In mentioning that I was from what many consider Christine O'Donnell land these days, the president didn't flinch. In fact, there was an obvious hesitation.

He wasn't about to be baited into the drama of Delaware's U.S. Senate
campaign two weeks before the midterm election. But he eased. Perhaps because it became clear that I wasn't interested in baiting him for a Fox News sound bite.

Rather my point was (and still remains) that it's important to understand that worries about the deficit are not just the moral high ground of the tea party and establishment Republicans.

Independents, progressives and liberal voters realize they too have skin in the game when it comes to the country's unstable credit environment.

And believe it or not, many non-tea party supporters would be relieved
to learn that some of that unexpected TARP profit is being earmarked for the deficit.

Turns out it will.

"We've managed TARP so well that, in fact, most of the money never even got spent and whatever is remaining will help reduce the deficit," Mr. Obama said.

"But it doesn't solve our big problem. Solving the big problem will require us making some much more significant adjustments when it comes to big-ticket items. And that's a debate that Republicans really don't want to have."

Another reason for resisting trumpeting the TARP return on investment
under his watch are threatening economic forces, especially the lackluster gross domestic product numbers.

"We've got about 5 to 6 percent of GDP less money coming in than going out. Now, there are only two ways to solve that. You either cut spending or you bring in more revenue.

"And when it comes to cutting spending, as I mentioned earlier, the big-ticket items are Social Security, Medicare, defense. The entitlements in defense take up about three-quarters of the budget. So you can't cut your way through education or parks programs or the Environmental Protection Agency, because that's not where the money is."

This reality is why personalizing TARP spending in terms of many Americans' budgets rings hollow despite this growing interpretation encouraged by critics of the bailout.

It's too huge of a rational leap to believe that much of that $700 billion is "my hard-earned money" wasted on a government takeover of the Founding Father's core values of individual liberties and free enterprise.

Yet there is a patriotic duty to help keep the county running. Who doesn't want lower taxes? But not at the expense of nickel and diming wars with the country's enemies, or more raids on the Social Security Trust Fund.

Hard choices are ahead.

That's unavoidable, regardless of the makeup of the U.S. Congress in two weeks.

Yet it won't be possible if the current "them" and "us" hyperbole fueling the current political campaigns returns to Washington after election day.

It will take a crop of wise, and new political leaders who can discern the difference between bogey men conspiracy theorists and the real monster of legislative gridlock.

Contact Rhonda B. Graham at rgraham@delawareonline.com.