To send money is not to spend money

Robert Waldmann

Atrios vs Bernanke.

OK so I agreed with Atrios about Greenspan (just below). Now I disagree with him about Bernanke. He equates loans with gifts. He equates worse than optimal with worse than nothing (dealing with free market fanatics can cause one to overlook the difference).

Bernanke could have sent money from the Fed’s magic money machine in all kinds of ways. They could have paid down mortgages. They could have put money in my bank account. They could have given it to state governments. What they did was prop up a failed banking system, and the worst failures of the failed banking system, under the premise that capital misallocating financial intermediaries were necessary for a stable economy.

Note the unusual usage “sent money.” This is not a typo. Atrios did not hit the p too gently meaning to type “spent,” because the Fed did not spend money bailing out the banks. It loaned money, guaranteed loans and guaranteed assets. If they put money in Atrios’s bank account, full stop, then they wouldn’t be able to get it back. A loan is not a gift.

The latest estimate I saw of the cost of the bailout to the Fed was Negative $ 125,000,000,000.

I also think our experience with Lehman shows that, in the short run (which means until congress acts) bad banks run by incompetent greed heads are better than no banks. But in any case, even if you think we would be slightly better off if they had all gone bankrupt, $125,000,000,000 is a nice chunk of change.

update. However, I remembered incorrectly. The estimate was a profit of $ 115,000,000,000 via Barry Ritholtz who was not convinced. Close but no cigar. I mean ten billion here ten billion there and soon you’re talking real money.

Total delirium after the jump.

Here I think part of the problem is that, like most Americans, Atrios rejects socialism. If The Fed could make a killing intervening and saving banks, it could make a killing most years. Does that mean that a mostly private financial system is inefficient compared to one where the Federal government bears more risk and pockets the risk premia ? Sure it does. Wouldn’t that be public ownership of the means of production, that is socialism ? Yes. Am I saying that Bernanke and Paulson proved the superiority of a shift towards socialism (not all the way to nationalized popsicle stands). Yes I am.

I think that TARP is one of the best programs ever, and, if we were half rational, would be our first step on a path that leads part way to socialism.