[Vznvtthq]

The topic of the article itself is obviously uninteresting. The NBER "recession committee" is a backward-looking organization, with more interest in not being wrong than offering timely analysis of the state of the national economy or (gasp) predictions. This is no knock against them; to paraphrase, "there are two types of economists: those who predict the direction of interest rates on TV and real economists".

However, it does provide an interesting place to stop and think about the government's interventions/attempted interventions. I will restrict my discussion to the US economy and the actions of various facets of American government

In order of importance, there's been:

1) TARP/AIG bailout
2) "Quantitative easing" of various flavors
3) Auto bailouts
4) Finreg (to now, the political process leading to it)
5) Standard monetary policy
6) "Stimulus" of various flavors. I include, e.g. the extension of unemployment benefits etc

Some of these are offsetting.

For example, (2) and (5) injected a large amount of capital into banks by driving down the yield of various assets. Through the magic of fractional reserve banking, this turned into a large multiple of the actual cash injected. TARP injected a large amount of capital into all large banks and many smaller banks. Those which were already sufficiently capitalized voluntarily redeemed the additional capital as soon as feasible. Weaker banks retained the capital for longer, and arranged secondary equity offerings in order to eventually the redeem the government's capital. The AIG bailout injected capital into banks which had unhedged counterparty exposure/credit exposure to AIG and may have saved the markets from a systemically critical bankruptcy (I think that far too much has been made of this). (3) was most noteworthy because of the effective expropriation of auto debtholders in favor of less senior claimants (mostly the auto unions). This was a straightforward transfer between one politically favored group (organized labor) at the expense of a group of disorganized/dispersed stakeholders (small investors) and a disfavored group (financial firms of all stripes). A clearer demonstration of classic public choice theory is harder to envision. It also had the effect of tightening corporate credit markets, an effect which is likely to persist long after the current crisis. As far as I can tell, this consideration was independent of the actual bailout (for example, while the government was busy tearing up contracts, it could at least have done so in a way which preserved the priority of claimants while achieving the goal of continuing the Detroit gang as a going concern). (4) has led to increased liquidity preferences in banks (and thus economy-wide), though it's difficult to assign a number here (liquidity preferences had already gone up due to market experiences).

Straight-up "stimulus" is regulated to last place mostly because it's unclear to me if it had any effect at all. I have no way to judge this.

I think the most interesting of these are (2) and (5). The key thing to bear in mind here is how limited the "normal" monetary policy response to macro events is. Quantitative easing is exactly like standard monetary policy except in that it targets variables other than short-term interest rates. Open market operations are open-market operations. And the difference between a repo and a purchase is negligible when you're talking about short-dated Treasury paper (the preferred open-market instrument). Why did it take so long for the Fed to drive down the long end of the yield curve? How ****ing hard is it to go out and buy 2-30 yr treasuries until the yield curve is a flat 1%? How hard is it to go out and sell credit protection on the CDX until spreads hit 75 bps? Bear in mind that you own the ****ing printing press.

The major problem with the attempted monetary policy was a failure of imagination and testicular fortitude.