I couldn’t agree more with David Obey about both TARP and the stimulus:
I think everything [President] Bush and [President] Obama have done on the economy is getting a needless bad rap. At least that’s everything Bush did after September of the last year he was in office. . . I knew then it would be costly political vote because I was pissed off, because I detested being in the position we had to help the very people [on Wall Street] who had caused the economy to implode in the first place. We had no choice. If you’ve got an epidemic going on, you’ve got to treat the people who caused the epidemic as well as the people treating it or everyone is going to die.
The public hates it, but it happens to have been a pretty damn good deal for the taxpayers. When all is said and done, that will not have cost the American people nearly as much as we feared. The cost will be less than $100 billion. And if you can save your economy by spending $100 billion, I’d say that’s worth it. Even if to do that you had to give some help to the dumb bastards who got us in trouble in the first place, and you can quote me.
The problem for Obama, he wasn’t as lucky as Roosevelt, because when Obama took over we were still in the middle of a free fall. So his Treasury people came in and his other economic people came in and said “Hey, we need a package of $1.4 trillion.” We started sending suggestions down to OMB waiting for a call back. After two and a half weeks, we started getting feedback. We put together a package that by then the target had been trimmed to $1.2 trillion. And then [White House Chief of Staff] Rahm Emanuel said to me, “Geez, do you really think we can afford to come in with a package that big, isn’t it going to scare people?” I said, “Rahm, you will need that shock value so that people understand just how serious this problem is.” They wanted to hold it to less than $1 trillion. Then [Pennsylvania Senator Arlen] Specter and the two crown princesses from Maine [Sens. Olympia Snowe and Susan Collins] took it down to less than $800 billion. Spread over two and a half years, that’s a hell of a lot of money, but spread over two and a half years in an economy this large, it doesn’t have a lot of fiscal power.
I realize that there arguments to the contrary on both issues: Treasury should have struck a hard bargain with AIG creditors (maybe 60 cents on the dollar) rather than making them whole, why complain about the size of the stimulus rather than giving credit for the fact it passed at all? Jon Chait explains the back-and-forth on the stimulus very well:
It’s possible the moderates really were fixated on the $1 trillion barrier, and any larger proposal might have simply gone down in flames. That, of course, would have been a catastrophe: an economic meltdown and a political flameout that might have crippled Obama’s entire agenda out of the gate. The counter to the counter argument is that Obama was maximally positioned to play political hardball: He could have insisted that a $1.4 trillion stimulus was what he needed to fight the recession, and threatened to blame Republicans who stopped it for abetting mass unemployment. That would have been a risky play. But given the social and political costs of mass unemployment, it was probably worth taking a chance to push the stimulus number as high as it could go.
When all is said and done, I think history will show that TARP was an imperfect success and that the stimulus was much too small.