Santorum's Revisionist History of Bailouts
Rick Santorum's fierce condemnation of "bailouts" before the Detroit Economics Club on Thursday was a good ideological fix for those who like to mainline pure market smack. But Santorum's remarks misrepresented or ignored so much of the actual history of the financial catastrophe of 2008 and the auto industry crisis that they raise questions about how well he understands that history. Not to mention economics. Not to mention the job of president.
Santorum criticized the Bush administration's "bailout" of Bear Stearns, but actually what occurred was nothing like that. The New York Fed issued a $30 billion loan to J.P. Morgan to faciliate the sale of Bear Stearns, collateralized by the underwater investment bank's assets. The deal resulted in the dissolution of that investment bank, which no longer exists. Not much of a bailout.
More significantly, Santorum said he believed the financial industry
and economy would have recovered on their own without government
intervention. True, there have been major, legitimate questions raised
about the nature of the TARP bailout and whether, in the end, it was
"injurious to capitalism," as Santorum said. But nearly every mainstream
economist agrees that Wall Street was so insolvent by then that a total
collapse of the financial system, and very likely another Depression,
would have resulted had the government not intervened.
As former Fed Vice Chairman Alan Blinder and Mark Zandi, an economist at Moody's who advised John McCain in the 2008 campaign, concluded in a 2010 paper, absent the bailouts of the banks and auto companies, the unprecedented lending policies of Ben Bernanke's Fed and other extraordinary measures, America's GDP would have been 11.5 percent less, with 8 and half million fewer jobs and a federal budget deficit that would actually be higher.
Thus, Santorum was also pushing the boundaries of credibility when he denounced the Obama administration's rescue of the American auto industry, suggesting that the Big Three would have fared well on their own. "Would the auto industry look different than it does today? Yes it would," Santorum said. "Would it still be alive and well? I think it would be alive and just as well, equally if not better."
The problem with that view? He has no evidence. The evidence on the other side of the ledger, meanwhile, is overwhelming. A study by the Center for Automotive Research in 2010 found that more than 1.14 million jobs were saved in 2009 alone because of the bailout.
Santorum also suggested that the steel industry has fared well absent government help, even though it has only a fraction of the jobs it had a few decades. The industry has lost at least another 50,000 jobs in just the last decade.
Santorum may well boast of his ideological consistency. His connection to economic reality is another question entirely.
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