For Lawrence Summers, the president's economic adviser, the financial crisis is kind of like a military battle. Buried in this Wall Street Journal about the disconnect between Wall Street and Main Street, is a rather odd quote from Summers in which, by way of metaphor, average Americans are just collateral damage in the economic crisis.
"Just as in war," Summers said, "there are unintended victims so, too, in economic rescues, there are unintended beneficiaries."
It doesn't take much thought to surmise that the "unintended beneficiaries" are Wall Street banks like Goldman Sachs and JPMorgan, which both recently reported robust profits as the larger economy continues to languish.
But, as the stock market continues on its rally, the Obama administration is facing increasing scrutiny for using the $700 billion TARP program to save Wall Street while neglecting, well, every other street in America.
More context from the WSJ:
So was the Bernanke-Paulson-Geithner-Summers strategy a flop? Was $700 billion to shore up the banks and $787 billion in tax cuts and stimulus spending misconceived or insufficient?
The explicit strategy was to stabilize banks and financial markets first because Mr. Bernanke and Bush and Obama administration officials saw that as an essential prerequisite to reviving economic growth. No credit, they said, means no jobs.
Though Summers says some banks were merely the accidental winners of the bailout, from the beginning TARP was created with the intent of providing quick, obligation-free capital to the financial sector. Sadly, the fact that bailed-out banks were never explicitly required to lend is not a particularly new revelation. To wit, consider this New York Times article from January - yes, January -- entitled, "Bailout Is A Windfall To Banks, If No Borrowers":
"Individually, banks that received some of the first $350 billion from the Treasury's Troubled Asset Relief Program, or TARP, have offered few public details about how they plan to spend the money, and they are not required to disclose what they do with it. But in conversations behind closed doors with investment analysts, some bankers have been candid about their intentions.
Most of the banks that received the money are far smaller than behemoths like Citigroup or Bank of America. A review of investor presentations and conference calls by executives of some two dozen banks around the country found that few cited lending as a priority. An overwhelming majority saw the bailout program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses or invest for the future."
(Emphasis ours)
Considering the above, there hardly seems anything unintentional about the structure of the bailout.