The taxpayers made $96B on those loans [1]. The issue then was that everyone was buying those CDOs because they were AAA rated, things like the pension funds and the banks themselves. I'm saying that if only individual investors are buying the corporate debt, it's not a systematic risk.
That's a fair point given the way I phrased my reply, but TARP is far from the extent of the cost of the financial crisis. The resulting market crash, credit crunch, unemployment all play a role in making this much more than a private issue. The fed estimated the cost to each American at $20-80K. [1] Also TARP could have very easily not made money, and bailouts are certainly not guaranteed to make money the next time around.
That's fair too, though it's easy to blame all of the recession on the subprime bubble bursting while I think it would have happened anyway, eventually. And I'm advocating for letting banks, funds and investors fail if they lose at the game of musical chairs. For this to work though they need to be kept separate from rest of the finance system and use their own money.
I'm agreed with you on that point. I wish we lived in that world and I think we should work harder to get there. As long as we don't, though, I'm resigned to recognizing the public costs of these private failures.
That's still an incorrect way to view it given that the fed still is holding on to around a trillion dollars worth of those CDOs, and one could argue this is a huge factor in why the median American home price is so much higher than it was before the 2008 crisis.
"Altogether, accounting for both the TARP and the Fannie and Freddie bailout, $632B has gone out the door—invested, loaned, or paid out—while $390B has been returned."
It goes on to claim revenues that make up the difference in the stated amounts.
However, I don't see them say these figures are inflation-adjusted. 2018 dollars are roughly worth 83 cents in 2008 terms.
More importantly, those Propublica stats cover only TARP and the Fannie Mae / Freddie Mac bailouts. It counts the fake "profits" on the GM bailout[0] but not the losses on the losing end of the GM reorganization split[1], serving to bail out union pension plans.
Not really. Investors got wiped out in many of the 2008 cases. Some banks were given loans but that money didn’t go to investors, it all had to be paid back.
Indeed. I'm not saying the investors didn't have downside. Many did, and many of them lost everything (as they should have). But the public also bore a tremendous cost, and that makes the threat of another such crisis a public issue.
Additionally, if the public at large is losing then someone out there is winning and that entity will see these crisies as profit opportunities instead of disasters.
As a high schooler, I remember buying citi stock for $2.60 or something like that. Just an anecdote, but my teenage self just said, “come on. It’s still a bank!”
This kind of argument misunderstands what systemic risk mentioned in the article means. It's not the same as market or price risk.
When systemic risk is realized, those who took too much risk take with them much bigger number of people and businesses that had nothing to do with it. For example, you might not be able to withdraw your money, or completely profitable manufacturer can't get a operating loan to buy materials to make a products with high demand.
And then limited partners don't put money in to VC firms. And that guy who was taking $500K an year for twiddling JSONs at Netflix all of a sudden won't be able to pay mortgages on his $1.5 million home.
