Mitt Romney today in our interview articulated a decent distinction when it comes to bailouts: saving banking institutions is not the proper role of government, even if saving the banking system is.
But when I asked him about TARP, he defended the government’s saving of institutions. This led me to wonder if Romney’s distinction has any teeth. In other words, if the institution is big enough, would he feel the need to save it (the sort of thing that fuels moral hazard and distorts the economy) or would he wind it down.
Here’s his TARP response:
I think the purpose of TARP was to prevent a run on all of the banks. And I mean all of them.
As you know, I spent my life in business. I met and spoke with major enterprises. I was on the board of at least one. We were all taking about getting our money out and where to put it – I’m talking about these institutions that had — most corporations have tens of millions of dollars in institutions. Goldman Sachs, Morgan Guaranty, J.P. Morgan. And if they think these institutions are going to pull a Lehman, then they’ve got to get their money out so that they can keep paying their people. And when that kind of fear begins to enter into a system, and you have the potential of a complete panic withdrawal…
As you know, I spent my life in business. I met and spoke with major enterprises. I was on the board of at least one. We were all taking about getting our money out and where to put it – I’m talking about these institutions that had — most corporations have tens of millions of dollars in institutions. Goldman Sachs, Morgan Guaranty, J.P. Morgan. And if they think these institutions are going to pull a Lehman, then they’ve got to get their money out so that they can keep paying their people. And when that kind of fear begins to enter into a system, and you have the potential of a complete panic withdrawal…
