*click, click, click.*
Students, take your seats; class is now in session. For today's lesson, we'll be examining why profits are good. Though it may be an overwhelming concept, we want high returns on our investments. Case in point: the Troubled Asset Relief Program (TARP).
Two years ago, in the midst of financial crisis, the U.S. government enacted a bailout program (TARP) to essentially purchase "troubled assets" from financial institutions to bolster the financial sector, and thus save the U.S. from financial meltdown. This effort, of course, required a substantial investment: $700 billion, in fact. Such an act would entail tremendous risk, and many taxpayers were unwilling to support it.
Nevertheless, our investment paid off.
According to a recent Bloomberg report, the TARP, which tapped less than half of the proposed $700 billion, has earned the U.S. a profit of $25.2 billion--this equates to an 8.2% return on investment over the past two years, a return which surpasses those of high-yield savings accounts, money market funds, CDs, and U.S. Treasuries. The return alone could fund the Securities and Exchange Commission for 20 years.
Despite preventing financial catastrophe, the profitable TARP and its supporters are still under heavy criticism--so much, in fact, that those in favor risk losing voters come November, and pluralities of poll respondants believe the TARP will weaken the economy.
What's the moral of this lesson? Anyone? We want investments to turn a profit. In order to turn substantial profit, risk will inevitably be contended with. We cannot, however, let risk overrule instinct. Because when desperate times call for desperate measures, risky investments, like dumping $309 billion into U.S. banks, just might payoff for investors.
How do you all feel about this issue? Should it continue to demand political crucifixion regardless of its clear financial success?
--Chris
Photo taken from this photostream and used with permission of a Creative Commons license.
The investment may have paid off, and I agree it was the right thing to do at the time. But the financial industry should never have been in a position to require a bailout by taxpayers. What people are forgetting is that it was a republican president who pushed the $700 billion dollar bailout on congress and the historical precedence of government intervention, not Obama. Granted, Democrats controlled congress but they originally did not pass the bill and it wasn't passed till the Bush Administration made the democrats afraid of what could happen if they did not pass the bill. The Bush administration legacy is one that was to control by fear and at the same time take away some of our civil liberties in the name of "security". I'm a independent but I'm more disenfranchised with the republican party then the democratic party because at least the democrats have actually tried to pass legislation to reform certain practices that caused this financial disaster. Whereas the republicans all they can do is say "no" but fail to actually have a plan to fix things and all they can do is look out for Wall St interest's rather then Main St America interest.
Here's an article that highlights Wall St contributions to Republicans and Democrats political campaigns. It is interesting to note that every company who received TARP funds has not contributed to a single democrat. Would you rather have a politician that is willing to pass financial reforms and restrict Wall St, or would you rather have a politician that is in Wall St pocket's? Just proves my previous statement that Republicans have no interest in Main St America, despite all their claims. It wasn't democrats holding up benefits to unemployed Americans, but Republicans. It amazes me the short attention spam American people have and the how easily dis-information can influence people's choices.
http://www.washingtonpost.com/wp-dyn/content/article/2010/10/24/AR201010...
FXIBonline,
Thanks so much for your comment. I certainly understand your political frustrations, but I think you're letting them get in the way of the real issues here. Yes, the TARP investment paid off; yes, it was the right thing to do at the time; yes, the financial institutions should never have been in the position to need bailout assistance from taxpayers and our government. These are three very valid points; however, the latter point reduces the entire situation to "coulda's, woulda's, and shoulda's." The financial industry should not have put itself in the position to need our help... but it did; there's no changing that. Focusing on that aspect, however, will force us to shift blame to a single entity (in this case, the Republicans), in an effort to solve the problem. But this, of course, will not solve anything. The way to solve the issue was by passing the TARP, which is exactly what was done. Now, don't get me wrong here: I'm not presenting an argument for the benefit of any political party. I'm simple showing how stepping away from the politics of the matter allows us to see that, even though this was the financial industry's problem, their problem would have inevitably shifted onto us. Our country would have experienced financial meltdown--they needed our help, but we needed to help them to, in turn, help ourselves. By stepping away from the politics of the matter, it's also possible to see how political frustrations have muddied the matter. "... a Republican president pushed the bailout... not Obama." "The Bush Administration's legacy is one that was to control by fear... [they] made the Democrats afraid." "Republicans... fail to actually have a plan." These comments are giving the "Republican Party" a little too much credit. Despite controversies surrounding his administration, President Bush's pushing of the bailout was one of the few good things his administration set in motion. It was so good, in fact, that his succeeding Democratic administration saw through the politics, understood that it was what was best for the American People, and fully enacted it. This plan--which actually worked--was fueled by a Republican administration and passed by a Democratic one: how's that for bi-partisanship? The TARP was probably the best decision for America. Not for the Republicans; not for the Democrats; not even for the financial institutions. This was passed in the interest of the American People, and, despite its immense risk, it paid off. The shame is that those politicians who were initially supportive, whether Republican or Democrat, will most likely lose votes based on the population who still cannot set aside their political differences.
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