So several of the Big Bad Banks are going to repay their TARP funds. Hooray! And the government stands to turn a small profit -- about $5 billion -- on the whole thing so far. Double Hooray! This must mean the economic crisis is over, right?
Oh, no, it will never be over. Just days after saying the recession may be done by the end of summer, Paul Krugman wrote yesterday:
Just a quick note: is it just me, or has the economic news started to darken again? Up through about March, every report was worse than you expected, often worse than you could have imagined. Since then, most reports — although continuing to be bad in an absolute sense — have “surprised on the upside.” But my sense is that in the last few days we’ve been getting reports — Korean trade, Japanese orders, German exports — that are once again surprisingon the downside.This thing ain’t over yet.
Why? Why are people willing to invest in banks that are so troubled? Most people say it's because investors know, thanks to TARP, TALF, PPIP, etc. that the U.S. government is invested in keeping these banks standing. If they can't fail, why not invest?
I agree that's partially behind this, too, but there's a larger political issue, as well. Would TARP under President John McCain have saved the banks? I think not -- in part because McCain never seemed particularly committed to the goal of TARP. Instead, I think the recovery that's starting now -- or at least the plateau we've reached -- is due mostly to the confidence that comes when a Democratic administration -- an administration with hardly any "real" liberals, but with that funny socialist reputation -- shows a willingness to step between Wall Street and Main Street. And right there is the reason that a Democrat's administration is generally better for the economy than a conservative administration. People want the confidence that comes with a backstop; they are more willing to spend and invest when they know there's an active referee on duty.
Did Barack Obama save the banks? Maybe, maybe not -- but his presence in the White House, and all of that televised whining about his socialist tendencies, hasn't hurt the recovery one bit.