It's all about cognitive dissonance, the mental quirk that allows folks to hold two opposing ideas in their head at once, by never allowing them to come in contact.

The idea that Bush, Paulson, and Bernanke might have pushed some bailout plan because they saw a genuine emergency must be kept separate from the much easier idea that it's all valueless socialism.

Unfortunately this blocks important discussion about whether we had the right response to a real problem.

Maybe I'm missing it, but I don't really see how you contradicted anything Matt said.

Republican senators voted for Tarp by a greater than 2 to 1 margin.

Sure, there were some opponents on the right in the House, but it seemed purely symbolic.

Oh, on that real crisis and its solutions:

Calculated Risk, on the NYT report, "Financial Crisis Inquiry Commission"

I don't see how opposition to Bush (notwithstanding it wasn't as vociferous as you suggest) equals saying it was a socialist plot.

Didn't the reasonable middle pause to consider that Paulson (and Bush) would have only changed their stripes to such a degree if conditions were truly dire?

Yes, there were protests, amongst those so confident in their disenfranchisement that they knew they had no burden of responsibility.

That's forgotten now, as "it's all Obama."

As I recall, Steve Verdon, Drew, myself and others here were vehemently opposed to TARP from the early days. The fact that so many Republicans went along with it helps explain why I hate Republicans. This in no way mitigates my disdain for the many Democrats took this festering pile of feces and made it their own. The fact that Young Mr. Yglesias thinks he has a debating point win here is why I don't take him seriously.

Charles made some good points. As I stated before, one of the reason Republican’s has lost so much support is they no longer represent conservative values. Dem-lite just doesn’t cut it.

Republican senators voted for Tarp by a greater than 2 to 1 margin. Sure, there were some opponents on the right in the House, but it seemed purely symbolic.

In the House, Democrats voted 140 to 95 in favor of TARP, while Republicans voted 133 to 65 against it. The Dow dropped 777 points the next day, a record.

The Senate then voted on a revised form, that included sweeteners such as tax breaks. Democrats voted 40 to 10 for it. Republicans 34 to 15 for it.

The House then voted on the Senate version, with Democrats 172 to 63 in favor and Republicans 108 to 91 against.

@Wayne

As I stated before, one of the reason Republican’s have lost so much support is they no longer represent conservative values

Re TARP, that will come as quite a surprise to the folks over at NRO.

Blame Milton Friedman
Or, how I learned to stop worrying and love the bailout

KEVIN D. WILLIAMSON

At the suggestion of our editor, Rich Lowry, I’ve been reviewing some correspondence leading up to National Review’s endorsement of what became known as the Troubled Asset Relief Program, TARP. I was energetically opposed to our endorsement of that action and, upon reviewing my notes from the debate, it strikes me that I may even have been intemperate in my rhetoric. I trust Mr. Lowry will have forgotten my references to his “diseased mental siftings” and my sneering at “the panicked rantings of country-club Republicans in Greenwich, Conn.” In retrospect, that seems a bit much. I was happy that he shared my skepticism on the subject of bailouts for the automotive industry, TARP II, and other federal interventions.

Those who endorsed National Review’s line on TARP may be pleased to know that I have been rethinking my position. There are those conservatives who ask themselves, “What would Jesus do?” There are those who ask, “What would Ronald Reagan do?” There are even a few who ask, “What would Russell Kirk do, other than pour himself a scotch and shake his head sadly before writing another 1,000 pages?” I ask myself, “What would Milton Friedman do?”

Milton Friedman would have supported a bank bailout.

Or it seems he would have, given that a bank bailout is more or less what he prescribed for the last great financial crisis, the one leading up to the Great Depression, which he dwells upon at some length in his Monetary History of the United States, 1867–1960. The vulgarized version of Friedman: The Federal Reserve helped turn a routine if severe recession into the Great Depression by tightening the supply of money and credit. But as economists as different as Paul Krugman and Tyler Cowen have pointed out, the more accurate version is this: The Fed helped cause the Great Depression by allowing the supply of money and credit to tighten. The distinction is important. How did they allow it? By declining to bail out the failing banks.

Milton Friedman would have supported a bank bailout.

This is not a defensible statement, no matter what Mr. Williamson thinks.

Explain to me how "no bailouts" is not cognitive dissonance ... do you disbelieve Paulson that we risked collapse? We now have many more reports that Paulson honestly believed this. Or do you believe that collapse would have been manageable without any kind of bailout?

How would that have worked, exactly, when the short term credit markets seized, and not just one, but many money markets "broke the buck?"

BTW, there was a time when the narrative which workd for OTB bloggers was that the economy was strong, but "Obama talked it down."

That was always BS, it requires a temporal anomaly, that Obama came before Paulson ... BUT ... notice how that argument went away? Notice how once "Obama talked it down" some went Radio Silent on the economy?

... that's because to really engage with it requires a resolution of the dissonance.

That should have read "Notice how once 'Obama talked it down' [failed as an argument] some went Radio Silent on the economy?"

Well I was opposed to TARP and still am. I thought it was a bad idea then and I still pretty certain it is a bad idea in hindsight.

I don't think you can argue that conservatives were all in favor of TARP under Bush-just because the R is by your name that doesn't necessarily equal a conservative-much less a conservative on something like TARP.

I do think TARP was also born of panic-the drive to do something. I am not sure government should always do something when it comes to stuff like this.

@Charles

This is not a defensible statement, no matter what Mr. Williamson thinks.

Or, I guess, in your opinion, Tyler Cowen:

Were the bailouts a good idea?

...

Without the bailouts we would have had many more failed banks, very strong deflationary pressures, a stronger seize-up in credit markets than what we had, and a climate of sheer political and economic panic, leading to greater pressures for bad state interventions than what we now see. Milton Friedman understood all this quite well, which is why argued bailouts would have been a good idea in the 1929-1931 period.

(By the way, some libertarians like to pretend that Milton Friedman blames the Fed for "contracting" the money supply by one-third in that period but in reality Friedman blames the Fed for having let the money supply fall by one-third and not having run a bank bailout.)

If you are a libertarian, is not our current course more favorable for liberty than would have been a repeat of 1929-1931? If not, I would be curious to hear your counterfactual version of how matters would have proceeded, without the financial bailouts. Is it that you think the regional banks would have raised the financing to pick up the entire bag and keep the banking system afloat? Or is it that natural market forces would have somehow avoided a wrenching surprise deflation? Or do you think the authorities for some reason would have not nationalized the major banks? Please let us know.

Charles, I'd be interested to know what you think would have happened absent the bailouts.

BTW, back in those "Obama talked it down" days I mentioned the then-current failed bank count. Some thought that was all there would be.

We are up to bank failures 93 and 94, but more important than that, we are warned that the FDIC is $400 billion in the hole.

T.A.R.P. IS MOOT.
Every dime has been offered in repayment,and much of it has been refused by the Obama administration. The onus has now shifted.

Well, I don't believe comparisons of today to the early 1930's are even remotely comparable, for far too many reasons to go into here.

Had there been no bailout, a lot of banks would have went under. There's nothing pretty about that, but it would have been preferable to the NON-TRANSPARENT "solution" we have today and all the moral hazards that have been not introduced, but reinforced by the government stepping in to make whole some (but not all, especially not the well connected) people who ignored or devalued risk. As it is now, what's to stop the Masters of the Universe from doing it all over again? And then there's the problem of so many banks now having to do the administration's bidding for current and future operations. What could possibly go wrong?

Well, people who opposed bailouts then can give an easy "things would have been fine" now.

I can't argue with that, because it is an exercise in creative writing. You can write that as easily as I can write "it would have been bad."

The thing to be aware of though, is the "if."

If Paulson (free marketer extraordinaire, who changed his stripes in a crisis, who convinced the Bush administration to back TARP) was right ... then all of the "no bailout" arguments wither.

BTW, speaking of creative writing ... if you were going to chart our road to socialism, writing in 2005 say, would you have picked Bush and Paulson to be your actors? Bush and Paulson the socialist moles?

Tin foil hat time.

I was not particularly fond of GWB, but I can see that something big happened to change his world. If he could have found a way to say "government is the problem" in late 2008 or early 2009, he would have. The fact that he couldn't do that, that he couldn't tough it out, is very telling.

@Charles

I don't believe comparisons of today to the early 1930's are even remotely comparable

But Charles, I thought economics was a science, and as such, deals in laws that are invariant over time, and moreover, has predictive force. If it doesn't deal with laws invariant, what kind of science is it? Or have I misunderstood the arguments for economics as science?

I do think TARP was also born of panic-the drive to do something. I am not sure government should always do something when it comes to stuff like this.

Let's change that a bit, shall we?

I do think the Iraq War was also born of panic-9/11 scared the bejesus out of us. I am not sure government should always do something when it comes to stuff like this.

The parallel is interesting...

"We are up to bank failures 93 and 94, but more important than that, we are warned that the FDIC is $400 billion in the hole."

As I recall the FED decides to close a bank. The bank may not have failed. Has the FED released the guidelines they use for deciding when a bank will fail.

Zero failures then davod?

The $400 billion dollar hole is there because these seized banks were going down ... insert analogies about the coast guard and high speed pumps here.

BTW Floyd, the "TARP repayment" thing is complicated, but one factor in "paying it back" is that the FED is flooding those banks with another kind of government money (in low interest loans).

Would you take money at less than 1% to pay back money you owe at 5%?

What are the FED's parameters for closing a bank?

Interesting that you should ask:

The Federal Deposit Insurance Corp.’s Inspector General released a report today on the regulator’s handling of failed IndyMac Bank, which specialized in stated-income loans to folks with decent credit scores.

The FDIC noted issues at IndyMac as early as 2002, but did not stop the bank’s risk taking, the report says.

“It was not until August 2007 that the FDIC began to understand the implications that the historic collapse of the credit market and housing slowdown could have on IMB and took additional actions to evaluate IMB’s viability,” the report says.

IndyMac’s failure is expected to cost the FDIC’s insurance fund $10.7 billion.

More here.

I would guess that what's written down is not exactly the same as what happens. To know the real process, and how it changes with economic climate (and political climate), we'd probably need an insider's account.

Speaking of the difference between what's written down and what happens, do you know that the FDIC stopped collecting insurance premiums from banks a few years ago? They thought they had so much money they could give (their friends) the banks a break.

They collected no insurance premiums from most banks from 1996 to 2006.

So the FDIC will need to borrow from the general fund, or something ...

sam, do you think you are arguing with me? I don't ever recall defending economics as a real science.

Economics is a social science. It uses mathematics to build its models just like all the other social sciences, but just like all the other social sciences -- and importantly, unlike real sciences -- their assumptions and conclusions are necessarily subjective and generally not subject to experimental validation. Personally, I think it all has something to do with confusing statistical likelihood with causation, but YMMV. Perhaps that's why I dropped out of an honors economics program and went into Math/CS.

@Charles

[U]nlike real sciences -- their assumptions and conclusions are necessarily subjective and generally not subject to experimental validation.

That's was I getting at, Charles, in my sarcastic way (not too successfully, I guess). The problem, as I see it, is that these days, many economists being in thrall with their mathematical models, mistake the elegance of the model for the messiness of the world. And following on, I suspect (from my admittedly limited knowledge), that you're right: probability is mistaken for causation. Arguments about the 30s relative to our situation have to be arguments by analogy (as any argument from history must be). That doesn't make them bad arguments, only arguments that resist being distilled into formulas. Perhaps those economists who approach the subject with as keen an interest in history as in quantifiable "facts" (as I think Friedman did) might have the better economic insights.