Eideard

Shhhhh! Do you hear that? Neither do I. I’m talking about reaction from critics of the auto bailout to news that Chrysler will pay back the $7.5 billion that it borrowed from taxpayers of the United States and Canada. Chrysler is raising the cash to pay back its government loans through a combination of bond sales, a commercial loan and a cash infusion from its partner Italian automaker Fiat…

Granted, all this constitutes a refinancing of Chrysler’s debt and the company is far from being out of woods – it still owes the $7.5 billion. But the fact that an automaker that had been given up for dead a few years ago is now healthy enough to convince private investors to pony up billions is a positive sign. And the chief issue among bailout critics wasn’t the long-term survival of Chrysler (they were willing to let the automaker die after all) but whether the company could ever pay back the money it borrowed from the government. Well, it just did.

So Chrysler lives to fight another day, thousands of Americans keep their jobs and the company continues to expand and post profits. Which is good news, unless you are a Toyota state Senator, are paid by a think tank to opine that government can never do anything right, or are an ideologue who’s genetically incapable of uttering the word “government” without immediately blurting out the word “boondoggle.”

Ideologue being the operative word in my humble experience. Usually, the sloganeer is someone who could care less about the lot of someone who spent decades in an auto plant – overpaid for all the fun he had schlepping fenders onto a Chrysler chassis.

Nope. I have a lot more sympathy for the folks who spent a significant portion of their lives in the not-so-healthy atmosphere of an American factory instead of the ivory tower that makes some people “superior” to those getting a paycheck for manual labor.

Tim Geithner, Secretary of the Treasury
Daylife/AP Photo used by permission

It isn’t often that the government launches a major program that achieves its main goals at a tiny fraction of its estimated costs. That’s the story of TARP — the Troubled Assets Relief Program. Created in October 2008 at the height of the financial crisis, it helped stabilize the economy, using only $410 billion of its authorized $700 billion. And most of that will be repaid. The Congressional Budget Office, which once projected TARP’s ultimate cost at $356 billion, now says $19 billion. This could go lower…

One lesson of the financial crisis is this: When the entire financial system succumbs to panic, only the government is powerful enough to prevent a complete collapse. Panics signify the triumph of fear. TARP was part of the process by which fear was overcome. It wasn’t the only part, but it was an essential part. Without TARP, we’d be worse off today. No one can say whether unemployment would be 11 percent or 14 percent; it certainly wouldn’t be 8.9 percent.

That benefited all Americans. TARP, says Douglas Elliott of the Brookings Institution, “is the best large federal program to be despised by the public.”

The source of outrage is no secret. Bankers are blamed for the crisis and reviled. The bank bailout — TARP’s first and most important purpose — was instantly unpopular. Most Americans, says Elliott, “believe that taxpayers spent $700 billion and got nothing in return…”

… As it was, TARP invested $245 billion in banks (and about $165 billion into the other programs). The extra capital helped restore trust. Meanwhile, the Federal Reserve increased its lending; the Federal Deposit Insurance Corp. guaranteed $350 billion of bank borrowings. Banks resumed dealing with each other because they regained confidence that commitments would be honored.

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Daylife/Reuters pictures used by permission

The American International Group has reached an agreement in principle to repay the Federal Reserve Bank of New York for the company’s 2008 rescue, and to gradually return the ownership of its stock to the public markets.

Robert Benmosche, chief executive of A.I.G., said the plan would allow the company to “remain on track to emerge with one of the largest, most diversified property and casualty companies in the world.”

The company and its rescuers in the federal government have been working intently in recent weeks to complete such a plan before the expiration of the Treasury’s Troubled Asset Relief Program on Oct. 3, and before the Fed’s bailout loan came due. The original terms called for A.I.G. to pay back the Fed within two years.

Under the plan, the Treasury Department will, for a time, own 92.1 percent of A.I.G. before it begins to sell its shares…

The company said it would use its own resources to pay back the $20 billion in loans, including the proceeds it expects to receive from the sale of a big overseas life insurance unit to MetLife. That sale, announced in March, should yield $6.8 billion in cash and $8.7 billion in MetLife stock, and close by the end of the year.

Still more money to repay the Fed is expected to come from an initial public offering of a second big foreign life insurance business on the Hong Kong exchange. The offering was delayed for several months while A.I.G. tried unsuccessfully to sell the unit to a British company, but A.I.G. now says the Hong Kong offering is back on. It did not provide a time frame.

In addition, the Treasury has agreed to help the Fed sever its ties with A.I.G., by providing the means for the company to redeem most of the Fed’s $26 billion in preferred interests. That money will come from the unused portion of an emergency assistance package that the Treasury made available to A.I.G. as its troubles reached a peak in early 2009…

Taking all of those steps will end the Fed’s role as a lender to A.I.G. and an investor in the company, a role that has never fit in well with the Fed’s duties as a central bank. The Treasury will come out of the transaction with a larger preferred stake in A.I.G., but expects the company to keep taking steps to pay it down, according to the new agreement in principle.

The range of fools, from hypocrites and sophists in the Republican Party to the just-plain-ignorant tea baggers who persist in whining about TARP confound reason. Whether your concern is history or economics, the truth remains self-evident. Not only did the TARP program keep a significant chunk of our economy from collapsing in the wake of the meltdown resulting from a decade or more of Free Market corruption, our Treasury and taxpayers continue to realize a profit from the payback.

It ain’t all over. But, the process is advanced enough that even the political losers and their obedient grunts should consider climbing on board and joining the move towards the future – instead of trying to turn back both time and progress.