Economists overwhelmingly believe the bank bailout helped ordinary Americans
The vast majority of economists believe the bank bailout prevented further harm to the economy during the financial crisis and effectively prevented the unemployment rate from rising even higher, according to a new survey from the University of Chicago of 40 leading economists. Nearly 80 percent “agreed” or “strongly agreed” that the U.S. unemployment rate by the end of 2010 was lower than it would have been without TARP and the subsequent commitments of government capital. But some who agreed that the bailout may have been helpful suggest that it may not have been the only option, arguing that it could have been harder on the banks and provided greater benefit to taxpayers.
“They could have been tougher on pay and dividends,” wrote University of Chicago economist Anil Kashyap, who strongly agreed that the bailout helped keep unemployment in check. “The question presumes Paulson’s forced alternative. If the only choice is between evil and Armageddon, evil might look ok,” wrote Luigi Zingales, another Chicago economist who agreed that bailout was helpful.
Stanford economist Pete Klenow, who said he was uncertain about the bailout’s impact on unemployment, pointed to a 2009 paper that argues that the government could have asked more from the banks in return for TARP and the debt guarantees. “If the government had applied the same terms Warren Buffett obtained from Goldman, taxpayers would have gained between $39 and $55bn, instead of losing between $21 and $44bn,” wrote Zingales and Pietro Veronesi.
They acknowledge, however, that the government might not have had such leverage over the banks at the time. And it’s certainly easy to have 20/20 hindsight. But TARP-watchers have revived such questions as more information is coming to light about how the bailout benefited banks without extending as much help to ordinary Americans as supporters had hoped at the time.