How Much Will This Cost? How Does This Constrain the Policy of an Obama-Biden Administration?
Larry Summers's answers are "not much" and "not at all." I agree:
Lawrence Summers - Taxpayers can still benefit from a bail-out: The American experience with financial support programmes is somewhat encouraging. The Chrysler bail-out, President Bill Clinton’s emergency loans to Mexico, and the Depression-era support programmes for housing and financial sectors all ultimately made profits for taxpayers. While the savings and loan bail-out through the Resolution Trust Corporation was costly, this reflected enormous losses in excess of the capacity of federal deposit insurance programmes. The head of the FDIC has offered assurances that nothing similar will be necessary this time. It is impossible to predict the ultimate cost to the Treasury of the bail-out programme and of the other guarantee commitments that financial authorities have – this will depend primarily on the economy as well as the quality of execution and oversight. But it is very unlikely to approach $700bn and will be spread over a number of years....
[T]he usual concern about government budget deficits is that the need for government bonds to be held by investors will crowd out other, more productive, investments.... To the extent that the government purchases assets such as mortgage-backed securities with increased issuance of government debt, there is no such effect.
Third, since Keynes we have recognised that it is appropriate to allow government deficits to rise as the economy turns down if there is also a commitment to reduce deficits in good times.... [T]he US made a serious error in allowing deficits to rise over the last eight years. But it would be compounding this error to override what economists call “automatic stabilisers” by seeking to reduce deficits in the near term. Indeed, in the current circumstances the case for fiscal stimulus – policy actions that increase short-term deficits – is stronger than at any time in my professional lifetime. Unemployment is now almost certain to increase... to the highest levels observed in a generation. Monetary policy has very little scope.... [E]xperience around the world with economic downturns caused by financial distress suggests that while they are of uncertain depth, they are almost always of long duration.... The more people who are unemployed the more desirable it is that government takes steps to put them back to work by investing in infrastructure, energy or simply through tax cuts that allow families to avoid cutting back on their spending....
We still must address issues of entitlements and fiscal sustainability.... [T]he worst possible actions... would be steps that have relatively modest budget impacts in the short run but that cut taxes or increase spending by growing amounts over time.... The best measures would be those that represent short-run investments that will pay back to the government over time or those that are packaged with longer-term actions to improve the budget. Examples would include investments in healthcare restructuring or steps to enable states and localities to accelerate, or at least not slow down, their investments...
