THE CRISIS A YEAR LATER / THE NEW YORK TIMES EDITORIAL

September 9, 2009

Editorial

The Crisis, a Year Later

With the one-year anniversary of the financial collapse now at hand, there is general agreement that the government’s bailouts and other interventions prevented a bad situation from becoming much worse.

The form and scale of the various rescues is still a matter of legitimate debate. But there is no doubt that the government has, for now, stabilized the financial system. Though credit remains seriously impaired, it is slowly becoming more plentiful and less expensive — a hopeful sign that the worst of the recession may be over.

Still, the results are nothing to crow about. Despite recent reports that the government is making money on the bank bailout, there is, as yet, nothing to suggest that the financial system is ready to function without vast government intervention — or that the costs to taxpayers will be anything but enormous.

Calculations compiled for The New York Times show that the government has collected profits of $4 billion from eight of the biggest banks that have fully repaid their obligations under the Treasury’s main bailout program — a return of about 15 percent annually. Calculations reported in The Wall Street Journal showed that the Treasury made $5 billion from 34 firms that repaid bailout money, for a 7 percent annualized rate of return.

That’s better than losing money on any given transaction. But the big picture is bleak. Estimates by Moody’s Economy.com, presented in recent Congressional testimony, suggest that of the $12 trillion the government has committed to fight the financial crisis and recession, the final tab to taxpayers will approach $1.2 trillion. That is equal to about 8 percent of the size of the economy. For comparison, the savings-and-loan crisis of the early 1990s ultimately cost taxpayers some $250 billion in today’s dollars, or about 3 percent of the size of the economy.

Worse, there is still much that the public does not know about the rescues. The Treasury still does not require banks to specify how they are using their bailout dollars, despite recommendations from the bailout’s special inspector general that the government demand a periodic accounting. Lawmakers and the public have no precise information about the roughly $300 billion in Citigroup assets that the government has guaranteed. Nor has there been an airing of the terms of the derivatives contracts that the government paid off in the bailout of the American International Group.

Without such data, it’s impossible to truly assess the bailouts’ efficacy or to be confident that the right reforms will be put in place to ensure this disaster doesn’t recur. And while it’s possible to say, in the moment, that conditions in the financial system have improved, it is hard to believe that there is anything ahead for the economy other than a very long, hard road to recovery.

Copyright 2009 The New York Times Company