The Incomplete Greatness of Barack Obama

[Kolesar]

4. A succinct account of how his team handled the meltdown of the financial sector

Instead, Timothy Geithner’s Treasury Department crafted a much more targeted intervention, aimed at stabilizing the financial markets and getting the economy back on track at the lowest possible cost to government. Rather than have the taxpayers assume the risky and expensive burden of taking over the banks—an expense that Congress, having already approved TARP and the stimulus, was in no mood to authorize—Geithner’s plan was to convince investors to come in and recapitalize them. His plan had three main parts. First, the Treasury, working with the Fed and other agencies, ran “stress tests” of the banks to determine the fragility of their books and how much more capital they’d need to be able to survive and lend in an even more dire economic scenario than was expected at the time. Second, it gave banks six months to raise that amount of capital from private investors, and said that, if they failed, Treasury would use taxpayer dollars to buy ownership shares of the banks at a preset price, effectively establishing a floor for private investors. Third, it created a fund, with both public and private dollars, to buy the toxic assets on the banks’ books, thereby giving some assurance that there would be a market for those assets.

The politics of the plan were dreadful. It looked like more mollycoddling of Wall Street. But, as Joshua Green noted in the Atlantic, it had the desired effect. Private money, $140 billion of it, flooded into the nineteen biggest banks; the lending markets unfroze; and, with the help of low interest rates from the Fed, the banks paid back the TARP funds, with interest. In 2008, the International Monetary Fund studied past financial crises in forty-two countries and found that their governments spent, on average, 13.3 percent of GDP to resolve them. By that measure, it would have cost the U.S. government $1.9 trillion. The Obama plan got the banks back on their feet at essentially zero cost to the government, and in historically near-record time. Let that sink in.
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I am amazed that we did not have another depression and "bank holidays", where we could not access our money.