Here’s How Bernie Can Still be Right on $1 Trillion Bailout

Here’s How Bernie Can Still be Right on $1 Trillion Bailout

Last week, Senator and Presidential Candidate Bernie Sanders made the claim:

Not one major Wall Street executive went to jail for destroying our economy in 2008 as a result of their greed, recklessness and illegal behavior. No. They didn’t go to jail. They got a trillion-dollar bailout.

This claim was given two pinocchios from The Washington Post’s Glenn Kessler. On the point that not one executive went to jail, Sanders is close enough for government work (Kareem Serageldin of Credit Suisse was sentenced to 30 months in prison). But it’s the trillion-dollar bailout Kessler takes issue with.

According to Kessler’s math, the total bailouts provided comprised of $245 billion in payments to banks for TARP, $191 billion for the Fannie and Freddie takeovers, and $68 billion for the bailout for AIG–giving us roughly $500 billion, half of what Sanders said.

So the Senator from Vermont’s math isn’t looking good, but Dean Baker disputes Kessler’s calculations, arguing:

He does note that a much larger amount of loans went from the Federal Reserve Board to the banks, however the piece points out both that the Fed is nominally independent of the government and that many of these loans were short-term, so that rolling them over would count twice. (If a bank got overnight loans for $1 billion for a week, this would count as $7 billion.)

If you include the loans made by the Fed, which peaked at $1 trillion in outstanding debt (though estimates of the total value of the bailout range from $7 to almost $30 trillion), Sanders “underestimates” the value of the bailout according to Sanders spokesperson Arianna Jones.

But this is the argument Kessler made that I take particular issue with:

Not only was Wall Street bailed out, but also the whole U.S. economy — at a profit of more than $200 billion for U.S. taxpayers. That point is frequently lost in the political discussion over whether the bailouts were worthwhile. We presume Sanders is not suggesting that the U.S. government should not have taken extraordinary actions to stabilize the financial markets.

Whether or not the bailouts were good is a non-sequitur, as is whether or not the taxpayers ultimately profited from them. These loans were not a function of the free market, and would not have come into being without government intervention.

Rather than seeing a banking crisis that requires a bailout as an opportunity for the taxpayers to make money (even if it is true from an accounting standpoint), it must be viewed as a back-end subsidy for financial institutions that took excessive risk.

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By |2019-03-19T10:31:58-07:00March 19th, 2019|Blog, Financial Regulation|