Treasury Notes

 Letter to the Editor: Assistant Secretary Massad Responds to a Column in the New York Times

By: Erika Gudmundson

Today, Assistant Secretary for Financial Stability Timothy G. Massad submitted the following letter to the editor in response to a column in today's New York Times about the government’s response to the financial crisis.


To the Editor:

A recent column stated that the Treasury Department should calculate the “opportunity cost” of   what a private investor would have charged and exclude income from the Federal Reserve when analyzing the direct fiscal costs of its financial stability programs.   The column also asserted that we have not clearly demonstrated that those initiatives had an overall positive impact on the economy.

First, the column ignores the fact that Treasury is required by law to account for the direct fiscal cost of TARP using a methodology that measures the initial subsidy costs based on a market-risk adjusted rate.  That is in part why the original estimates of TARP's costs were in the hundreds of billions.  But those initial estimates ultimately proved wrong as we continue to recover most of the funds we invested.

And the objection to the inclusion of the income from the Federal Reserve's  extraordinary interventions is ironic because, had those programs instead lost money, the same critics would have surely counted those losses among the overall costs of government action.

The larger issue is this: To compare the government's investments to what a private investor would have charged misses the point. These programs were necessary because private investors were not willing or able to put out the financial fire. The financial markets had all but ground to a halt and a growing panic threatened to plunge the global economy into a second Great Depression.

And while there are many ways to calculate the broader economic impact of these programs, it's clear that these interventions helped stem the panic and stabilize  an economy that was losing more than 700,000 jobs per month.  It's also clear today that their fiscal cost will be modest and they may even generate an overall profit to taxpayers. On any reasonable cost-benefit scale, that's a net positive.


Timothy G. Massad
Assistant Secretary for Financial Stability
U.S. Department of the Treasury
Washington, D.C.

Erika Gudmundson is New Media Specialist at the Department of the Treasury.

Posted in:  Financial Stability
Bookmark and Share