My Visit to the US Treasury, Part 6

Now, none of us knew when we came that only bloggers were invited.  Personally, I expected it to be a broader press briefing that some bloggers could come to as well.  “Deep background” is well understood to the press, but new to bloggers.  My blogging friends at the meeting can correct me, but all of us were surprised that it was only bloggers at the meeting.

My only clue that they might have treated us nicer than some other gatherings, was that some staffers not at the meeting came in after the meeting to raid some cookies.  Now, maybe that is normal regardless there.  I’ve seen the same things in corporate settings.  The e-mail announcement, “Open season in room 406!”  That said, the chocolate chip cookies were all gone. 🙁  I had one, as did Tyler, I think.  Maybe the Treasury officials had the rest.

Personally, I am comfortable with the restrictions on reporting from the meeting.  The Treasury’s high-level staff sound the same tune.  It doesn’t matter if we identify them or not, they reflect the policies of the Obama Treasury.  With restrictions on not identifying who said what, to me it does not matter, because they were senior Treasury officials.  We can quote, or approximately quote.  We can’t tie it to a single person.  That doesn’t affect us much.  We know what they think, and we can write about it.  We just can’t say exactly who said it, or whether they were there.

Making Money or Not

Few areas of the US government are designed to make money.  One of the main points that Treasury made to us was that the TARP would cost little, or might make money.  TARP is a piece of a larger puzzle.  My question is this, counting in all of the bailouts, including all stimulus programs, what is the cost to the taxpayer?  Now, I ask my readers what they know here. E-mail me with any comprehensive pieces that you have seen, or put it in the comments, so that all can see.

When I look at the bailouts, AIG, Fannie, and Freddie have sucked up /are sucking up resources.  With respect to the GSEs, I appreciate the view that the Administration views Fannie and Freddie as a hole in the system that they can use to funnel money to housing without asking Congress for approval.  Certainly their financial result show it.  Fannie lost a lot of money last quarter and is begging for help.  Freddie lost less, but is not asking for money now, but they likely will in the future.  As for the Treasury, they have opted to not maximize the value of Fannie by allowing her to sell of tax credits to others, notably Goldman and Berky.  They are not interested in maximizing the value of the GSEs, only of using them for their policy goals.

One slide the Treasury showed us was that they thought they were making money across all of the TARP bailouts that they did.  Also, that their guarantee programs had made money as well.

True, so far the guarantee programs have made money.  That does not mean that the government should be in that business, as it may encourage greater risk taking later, because they think the government will rescue them in times of trouble.  In England, at least some think it is a bad precedent.

TARP may be doing okay, but the same moral hazard argument applies.  Also, bailouts may come after shareholders have lost a lot, but management teams may (and seem to be now) benefit disproportionately from the bailout.  Away from that, the losses from the GSEs, Auto companies, and AIG swamp other gains.  That’s what it seems to me.  Does anyone else know better?  Please put it in the comments, for all to see.

Away from that, consider how the FDIC is basically broke, and that the FHA is not far behind.  This crisis is not over.

A Place of Agreement

One place where I can agree with the Treasury is that there should be only one regulator of depositary institutions.  The insurance industry can choose among states, but for the most part there are states for big companies,and states for small companies.  The states willing to regulate the big insurance companies have done a great job relative to the banking regulators.  There are few failures.  AIG died for non-insurance reasons.  Penn Treaty was a basket case long before the crisis.  Who else died?

Having one regulator for banks will remove the ability of the banks to choose the weak regulator.  It raises the risk that the one regulator will be corrupted.  That’s a lesser risk, because with many regulators, the odds that one will be corrupt are high, and corrupt institutions will go to them to be regulated.  With one regulator, politicians can more easily watch the troubles, and can more easily assign blame.

I have no objection to one national insurance regulator either.  That said, many states will object, because they have differing standards.  But does Congress really want to do insurance law?  It takes up a lot of time and is complex.

The Final Note for Now

Things always look best for a borrower immediately after his most recent loan.  So it is for most programs in our economy that favor giving loans in this crisis to stimulate demand.  So it was in the 70s and 80s with lesser developed countries.  The finances looked great after the loans, but after they had spent it away on consumption, things looked much, much, worse.

So it is with government programs that interfere with the free market through offering cheap lending terms.  They give a temporary lift that leads to greater problems once the subsidy is spent away.  So it is now with government subsidies and loans.

Other Posts

Two more posts on the meeting, one from a blogger who was there:

A Sit Down With Senior Treasury Officials – Part II

and one who was not, somewhat critical, but constructively so:

Treasury and the Blogs

As for me, I’m glad I went.  I have a better zeitgeist of the US Treasury.  I am not more impressed, nor less impressed with them.  I do want the Federal Reserve to consider inviting us to meet with them.  They are far less accountable than the Treasury, and many of us would like to counsel them on their behavior that seemed smart at the time, but will likely prove destructive to the republic.  Dare you invite us, Ben, or do you have less courage than the Treasury?