How the anti-government GOP got it wrong, and TARP turned a $15.35 billion profit for the American taxpayer

The modern-day Republican Party is an anti-government insurgency, one best captured by P.J. O’ Rourke: “Republicans are the party that says government doesn’t work, and then they get elected and prove it.”

It has become religious dogma within the GOP that government never works, it is an evil to be destroyed. It is a belief in the Laissez-faire doctrine of the Gilded Age that government should do nothing to interfere with transactions between private parties and let the “invisible hand” of the free marketplace run its course.

It is what led to the Great Depression in 1929. Andrew Mellon, the Treasury secretary to Herbert Hoover, embraced America’s history of cyclical depressions: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate,” Hoover recorded was the advice he received from Mellon.

It is a rejection of Franklin Roosevelt’s New Deal and aggressive government intervention in the economy to right the wrongs of a capitalist system run amok, best described by FDR in his Address Announcing the Second New Deal:

For twelve years this Nation was afflicted with hear-nothing, see-nothing, do-nothing Government. The Nation looked to Government but the Government looked away. Nine mocking years with the golden calf and three long years of the scourge! Nine crazy years at the ticker and three long years in the breadlines! Nine mad years of mirage and three long years of despair! Powerful influences strive today to restore that kind of government with its doctrine that that Government is best which is most indifferent.

For nearly four years you have had an Administration which instead of twirling its thumbs has rolled up its sleeves. We will keep our sleeves rolled up.

We had to struggle with the old enemies of peace–business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me–and I welcome their hatred.

I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master.

When the Bush Great Recession (in reality a depression) befell the country as a result of GOP economic policies, once again, Republicans opposed any intervention in the economy to prevent a deep and destructive depression.

Remember John Boehner’s tearful pleading with his GOP members to vote for the financial bailout and to Put Country First – Vote Yes? They rejected his plea to patriotism, the first time. But the Troubled Asset Relief Program (TARP) eventually was approved and signed into law by President George W. Bush.

Opposition to TARP became a touchstone of GOP politics in the conservative entertainment media complex.

This past week the Treasury Department sold its stake in “Ally,” formerly known as General Motors Acceptance Corp (GMAC), bringing an end to the TARP program.

Not only did aggressive government intervention in a marketplace run amok and in financial collapse work, it turned a healthy profit for the American taxpayer. It is a refutation of the predictions made by Republicans at the time, and a repudiation of their Laissez-faire economic doctrine.

The New York Times reported this week, U.S. Declares Bank and Auto Bailouts Over, and Profitable:

Six years after President George W. Bush began the auto bailout, the Obama administration on Friday declared a profitable end to the sweeping federal interventions in Wall Street and Detroit, saying a final sale of stock from General Motors’ former finance arm had closed a turbulent chapter of the financial crisis.

The programs “that helped restart the flow of credit to meet the critical needs of small businesses and consumers are now closed,” declared Treasury Secretary Jacob J. Lew. “And while the goal was always to stabilize the economy, and not to make a profit, it is important to recognize the return we have earned for taxpayers.”

The government actions, initially seen as necessary in Washington and on Wall Street to prevent a collapse of the economy on the order of the Great Depression, agitated the political world, helping give rise to the Tea Party movement on the right and the Occupy Wall Street movement on the left.

The Tea Party claimed that the bailouts were an enormous drains on the federal Treasury.

Yet in the end, the Troubled Asset Relief Program and the Detroit bailout yielded $15.35 billion in profit, Treasury officials said Friday.

“Effectively, today, our rescue of the auto industry is officially over,” President Obama said Friday, opening his end-of-the-year news conference. “We’ve now repaid taxpayers every dime and more of what my administration committed.”

In all, through TARP and other efforts, taxpayers injected $426.35 billion into banks and auto companies. The sale of stock and interest payments brought in $441.7 billion.

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Less than $1 billion in taxpayer funds remain scattered in about 35 community banks around the country, but with the sale on Thursday of the government’s last 54.9 million shares of Ally Financial, previously known as GMAC, the Treasury declared the bailouts done.

Thanks in part to the recent surge in stock prices, the Ally sale alone recouped $1.3 billion.

The final sale might have been dictated by market forces, but the date was resonant. On Dec. 19, 2008, President Bush announced, “Government has a responsibility to safeguard the broader health and stability of our economy,” and he used executive action to begin the auto bailout.

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With this week’s sale, the GMAC investment yielded $2.4 billion in profit. The government no longer owns any part of the auto industry, Treasury officials announced.

Although the overall bailout efforts turned a profit, the auto rescue did not. With Friday’s announcement, taxpayers were left with a $9.5 billion loss. Most of that came from General Motors, which paid back about $39 billion of the $49.5 billion invested.

But with auto sales booming and the Big Three Detroit automakers recovered, the Obama administration now points to the Detroit rescue as one of its biggest triumphs.

“The American auto industry is on track for its strongest year since 2005,” Mr. Obama said. “And we’ve created about half a million new jobs in the auto industry alone.”

As President Bush conceded, “Government has a responsibility to safeguard the broader health and stability of our economy,” and government intervention in a marketplace run amok actually worked. It prevented a greater economic catastrophe than the GOP’s Laissez-faire economic policies would certainly have created.

Now there is much that FDR and the New Deal did that the Congress of the past six years did not. The too-weak Dodd-Frank banking reforms are already being unravelled by the banksters of Wall Street and their GOP allies. Even the “Volker Rule” has been delayed.

And no bankster of Wall Street has been prosecuted for the most massive fraud in history. We are still at risk of another banking crisis brought about by “too big to fail” banks engaging in speculative investments (fraud).

The New Deal at least had the Pecora Commission that held banksters of Wall Street accountable for their actions. Even the Resolution Trust Corporation that followed the Savings & Loan banking scandal during the Reagan years would have been preferable.For the mortgage crisis, the revival of the New Deal’s Home Owners’ Loan Corporation (HOLC) to refinance troubled mortgages would have kept more people in their homes. Return of the Incredible HOLC: How a Depression-Era Program Could Help Solve the Housing Puzzle.

Congress should also have restored the financial firewalls of the Glass-Steagall Act that it so carelessly repealed with the Gramm-Leach-Bliley Act at the end of the Clinton administration. The “shadow markets” for derivatives, credit default swaps, and other loosely regulated investment schemes have not been made transparent or subjected to strong regulations.

Government intervention in the economy through the TARP “bailout” did not fail as predicted by the GOP. It was a Congress in thrall to the banksters of Wall Street, mostly the very same Republicans critical of TARP who pandered to the GOP base, who did not follow through with strong banking regulations and holding the banksters of Wall Street accountable for their fraud that is the real failure.

Now the banksters of Wall Street are firmly back in control of Congress through their GOP allies, and we are all at risk of the next financial crisis.