Thursday, March 31, 2011

An Invitation to DeLong

Neil Barofsky made a noisy exit from his role as inspector general of TARP, excoriating the Treasury for (my words, his sentiment) breaching its covenant with the American people:
Though there is no question that the country benefited by avoiding a meltdown of the financial system, this cannot be the only yardstick by which TARP’s legacy is measured. The legislation that created TARP, the Emergency Economic Stabilization Act, had far broader goals, including protecting home values and preserving homeownership.
These Main Street-oriented goals were not, as the Treasury Department is now suggesting, mere window dressing that needed only to be taken “into account.” Rather, they were a central part of the compromise with reluctant members of Congress to cast a vote that in many cases proved to be political suicide....
Indeed, Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals — whether born of incompetence, timidity in the face of a crisis or a mindset too closely aligned with the banks it was supposed to rein in — may have so damaged the credibility of the government as a whole that future policy makers may be politically unable to take the necessary steps to save the system the next time a crisis arises. This avoidable political reality might just be TARP’s most lasting, and unfortunate, legacy. 
 In short, Barofsky allies himself with a growing chorus of voices who are coming to perceive the American economic model as an examplar of crony capitalism, if not a banana republic ("kleptocracy" is perhaps too strong)--in any event, a small network of interconnected elites who ringfence themselves in warm nimbus of a beneficent government letting everyone else go hang.  See also link, link.   What's remarkable is how far this complaint has metastasized beyond the hysterical left--no more just Naomi Klein and Michael Moore, but seasoned conservativs like Michael Barone and Richard Vigilante, and market liberals like Simon Johnson or Raghuram Rajan.  These new critics are of a tendency too sophisticated to see President Obama as a vulgar socialist.  They see him as something worse: as an elitist/statist who believes that government is the privilege and responsibility of the good and great.

Brad DeLong showcases Barofsky.  DeLong demurs: "A considerably harsher verdict on the Obama Treasury than I would have handed down," DeLong declares.  The temperate nature of the demurral is itself worthy of remark: when DeLong encounters something he doesn't like, he customarily shampoos it with peanut butter and sand.

Which makes it all the more urgent to suggest: take it seriously, Brad.  Clearly you understand that "the Barofsky tendency" (for lack of a better name) cannot be dismissed out of hand.  But can it be dismissed at all?  If the critics are wrong--if the Obama economy has not become an elitist/statist ring-fence, rewarding its enemies and dismissing everyone else--then where do the critics go wrong?  I don't think that you can dismiss them as motivated by mere venality.  For the most part I don't see these critics as anything other than honest seekers after the truth (some have carped that Barofsky wants to run for office; I can only say I hope so).  They may make errors of analysis but these people are sophisticated and well-schooled and their errors, if any, are likely to be subtle and difficult to avoid.  You might be the academic best equipped to identify and defuse them.

Or to acknowledge that they are, in part or entirely, correct.  So, how about it?  


brad said...

It's not Treasury's fault that Congress came close to neutering financial reform. And actually doing something that is not prohibitively expensive to the mortgage market to improve it is much harder than saying that something should be done.

Tim Geithner and company did not set out to make HAMP a failure, or the PPIP a failure, or financial reform a limited success. And the auto bailout, the non-mortgage part of the TARP, and the stress tests count as solid wins.

So at the least Treasury is batting .500...

Ken Houghton said...

"Tim Geithner and company did not set out to make HAMP a failure, or the PPIP a failure, or financial reform a limited success."

I admire the optimism. And you played part of the inside game, so at the margin I would give the benefit of the doubt.

Except, as Buce notes, Neil B's evaluation matches mine and, to a large extent, his own. So we're not really at the margin right now. And Geithner's reports against the HAMP results is damning at best.

Certainly, the bailout of GM is a win. But defining "the non-mortgage part of TARP" as a win veers dangerously close to "with a few notable exceptions" territory.

It would be a very generous official scorer who would leave Treasury with a .500 average.

Ebenezer Scrooge said...

Batting .500?

Treasury succeeds when its actions result in higher bonuses for bankers. It fails when the bankers want it to fail.

In other words, Treasury bats 1.000 when facing the political equivalent of the Little Sisters of Mercy, and .000 when facing Major League pitching. Color me unimpressed.