In Defense of the 2008 Bank Bailouts, Again

Believe it or not, one need not be a liberal to be a supporter the unpopular but necessary bailouts. Republicans voted 133–65 in favor of the bailouts, although no one wants anything to to with it anymore due to the overwhelming unpopularity of the program despite its great success.

The problem has always been liberalism and entitlement spending – not Wall St., bank bailouts, or corporate welfare. The 2008 bailout was a success and a necessity, by stemming the bleeding in the financial sector and allowing the healthier sectors of the economy to thrive instead of being dragged down. By early 2008, interest rates were close to zero, making the bailout essentially free, and it indirectly paid for itself multiple times over in the form of the huge post-2009 stock market rally and economic boom. Unlike Greece and other economic weaklings, when a country with reserve currency status such as the USA has a crisis it causes government bond yields to plunge due to the flight to safety; this made the bailout nearly free. Furthermore, the treasury reported a profit from TARP just two and a half years later, and all of the banks have long re-payed the money.

Perhaps too big to fail sucks, but there’s nothing we can do about it given how interwoven and interconnected everything has become. The people I talk to are happy that their home and retirement accounts have recovered so strongly since 2009. Many wanted the financial system to fail to get Obama elected. Others wanted it fail to stick it to the rich. We shouldn’t view bailouts as necessarily a partisan issue, but a matter of necessity during national crisis such as 911 and the bombing of Pearl Harbor.

Furthermore, none of the much-feared ‘worst case scenarios’ ever materialized. There was no hyperinflation, no dollar collapse, and taxes didn’t need to go up to pay for it. In fact, the exact opposite happened: the dollar and treasuries have surged and inflation is still rock bottom. Six years later, still no hints of relapse.

Perhaps Bush was right in temporarily suspending the free market to save the free market. Letting politics and semantics get in the way of good policy can have disastrous consequences; after the dust settles we can debate if the bailouts were compatible with free markets or not. There is no such thing as a free market purist. Greenspan for example, was Ayn Rand’s greatest disciple. What proponents of monetarism and supply-side understand is that rather than aim for the impossibly high standards of market purism, it’s more effective to create – through occasional interventionism, low taxes, and deregulation – optimal macro economic environments for the free market to thrive. So while you do have the occasional bailout, you also get free market success stories like Tesla, Snapchat, Tinder, Uber, and Facebook.

From National Review’s Kevin Williamson:

Bailout politics is still very much with us: People resent — rightly — what was done and how it was done.

What exactly was done to whom? What about the GOP message of personal responsibility? No one forced these homeowners to take out a zero-down 30 year adjustable mortgage. No one forced these home builders to keep building when supply was obviously vastly exceeding demand. No one forced these liberal crybabies to sell their stocks at the bottom in 2008, or buy a home at the peak in 2006.

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