Monday, January 7, 2013

TARP: The scam that keeps on giving

I am currently reading through Matt Taibbi's article in the latest issue of Rolling Stone about the lies and deceptions used to sell the bank bailout four years ago to the American people and Congress. Though I haven't finished the article yet, very early on it, Taibbi discusses one of the tactics used by then-Treasury Secretary Hank Paulson to convince Congress to support the bailout. As Taibbi describes it:
Paulson needed at least a film of congressional approval. And much like the Iraq War resolution, which was only secured after George W. Bush ludicrously warned that Saddam was planning to send drones to spray poison over New York City, the bailouts were pushed through Congress with a series of threats and promises that ranged from the merely ridiculous to the outright deceptive. At one meeting to discuss the original bailout bill – at 11 a.m. on September 18th, 2008 – Paulson actually told members of Congress that $5.5 trillion in wealth would disappear by 2 p.m. that day unless the government took immediate action, and that the world economy would collapse "within 24 hours."
The argument presented by Paulson here is a classic example of Scare Tactics or the appeal to fear. The basic idea here is that rather than make a reasoned argument, one just tries to scare people into believing what one is saying. Paulson is trying to get Congress to support the bailout by making them very afraid about what might happen otherwise. Note the sense of urgency Paulson invokes. He is basically saying, "Pass this legislation now or the world will suffer financial Armageddon." Needless to say, history shows that this was a very successful tactic as the legislation was in fact passed very quickly with almost no debate or discussion about it. This was important because there were many alternative voices suggesting other solutions, solutions that would not have been as beneficial to the bottom lines of the banks as TARP was. As just one example, here is Paul Krugman suggesting another plan, one which he thinks is better, but probably not politically feasible. The key point here is that none of these alternatives was even considered (why is a good question, I will hypothesize greed) because the scare tactics employed by Paulson were effective in shutting down debate and getting Congress to support the plan that Paulson had already decided on. Had we had a more robust debate in September of 2008 perhaps we could have avoided some of the worst impacts of the recession, and pursued an economic policy that benefited everyone, not just wealthy financial elites. 

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