Bailouts: Elections have taught a US senator from Utah and Angela Merkel’s political party in Germany the same harsh lesson: Taxpayers loathe bailouts, whether of banks or nations. But opponents of such rescues need instruction, too — in the costs of the panic and destruction that would otherwise have ensued.
It’s a tough political sales job to turn the negative connotations of an expensive bailout into credit for avoiding a disaster that didn’t happen. Senator Robert Bennett of Utah found that out. His 2008 vote in favour of the $700-billion Troubled Asset Relief Program (TARP) was a key reason why Republicans in his home state overwhelmingly rejected the three-term representative as their party’s candidate in November’s congressional elections.
The same goes for Germany’s governing party and its allies. They suffered a crushing defeat in a key regional election, just days after Merkel pushed the Greek rescue package through the nation’s parliament.
Of course, voters should be skeptical of paying for other people’s financial mistakes. But it seems short-sighted for them to penalize politicians when they actually do something that’s unpopular but right.
And the TARP bailout does seem to have been the right thing. Despite its high sticker price, the final cost to American taxpayers will likely be a fraction of that thanks to speedy bank repayment of government capital injections.
The alternative — letting Citigroup, American International Group and other financial institutions fail — could have sent US unemployment to 13 per cent instead of 10 per cent, Federal Reserve officials reckon. And rather than growing at 3-4 per cent, the economy might still be shrinking. The cost of further output shrinkage and declining asset prices would easily have been in the trillions.
More From This Section
Avoiding that result hardly seems like a failure. The EU’s ¤750 billion “shock-and-awe” rescue plan, in the same vein, has dramatically reined in runaway bond yields as fears of a systemic collapse have abated.
Hindsight will only recognize success if European nations manage to reduce their debt loads, just as TARP merely bought US banks time to raise private capital and restore confidence. But if politicians do keep the pressure on for that kind of follow-through, maybe they deserve a bit more credit.