Noam Scheiber has a fascinating piece about the politics of TARP and whether TARP could have been more politically popular within the same policy framework.
I think if they took Bank of America or Citigroup and did a serious reorganization it would have potentially made people think that the government was serious about a penalty for the backstop; on the other hand, the short-term costs would have been larger in exchange for a better long-term situation, and as such would have been even more highly unpopular politically. The more obvious case is Ezra Klein’s point for pushing for financial reform earlier and more aggressively.
One other political point that I don’t think was emphasized enough was that there were many, many people who voted for TARP who fought and voted against the financial reform bill. And they are almost all Republicans, and they are almost all now getting rewarded in campaign contributions.
Zach Carter has a must-read about this point: ” Of the 69 House members who voted with Wall Street on both the bailout and financial reform, 60 are Republicans, while nine are Democrats. All 21 Senators who voted with Wall Street on both issues are Republicans, and Republicans raked in over 90 percent of the total campaign contributions.”
This gets under my skin, because one of the smartest and strongest proposals in the bill that was added from the original Treasury proposal was prefunding the resolution mechanism. There are arguments against this mechanism, but Republicans and conservative commentators describing it as a “bailout fund”, Mitch McConnell above all, were certainly following Wall Street’s marching orders in a successful attempt to get funding for the midterms. Mitch McConnell voted for TARP, against financial reform, set the narrative to weaken it, and got paid handsomely. Nice gig.
Here’s an important graph from Zach’s piece:
Zach has a full list of the 69 House members and 21 Senators who voted for TARP and against the financial reform bill. I wished they had gotten hammered harder for this cynicism.