I have a rather rigid view of the TARP bailout of 2008 – I cannot take anyone seriously who now says it should have been rejected outright.
With the country in 2008 on the verge of a financial meltdown – a second great depression in the making – there was no choice. And it’s easy and disingenuous -- and a bit smarmy -- for people to play Monday morning quarterback by saying now that Congress then should have voted it down. Period.
Let’s not forget that when TARP was voted down the first time, the stock market went into a freefall.
In addition, TARP loans were paid back in a routine manner and the interest earned by the feds means that, when all the cash is counted, the program may earn the government a small profit.
Even a solid conservative like commentator Michael Medved has proclaimed that TARP was, within its limits, one of the most successful government programs ever.
But then there’s the other side of the issue: What TARP was supposed to accomplish beyond stabilizing the banks and the overall economy.
Neil M. Barofsky, George W. Bush’s appointee to serve as the special inspector general for the Troubled Asset Relief Program served from 2008 until stepping down last week. In an op-ed piece for the New York Times, Barofsky wrote that TARP was a complete failure in helping to upright troubled mortgages and to spark bank lending to Main Street businesses.
Instead, the banks got bigger, the spending of TARP funds was never scrutinized, and “too big to fail” has become the new standard for government action. Barofsky blames incompetence and mismanagement at Obama's Treasury Department.
Here is a portion of what he wrote:
“The legislation that created TARP, the Emergency Economic Stabilization Act, had far broader goals, including protecting home values and preserving homeownership. These Main Street goals were a central part of the compromise with reluctant members of Congress to cast a vote that in many cases proved to be political suicide.
“Congress was told that TARP would purchase up to $700 billion of mortgages, and the Treasury Department promised that it would modify those mortgages to assist struggling homeowners.
“But little has been done to abide by this legislative bargain. Almost immediately, as permitted by the broad language of the act, Treasury's plan for TARP shifted from the purchase of mortgages to the infusion of hundreds of billions of dollars into the nation's largest financial institutions, a shift that came with the express promise that it would restore lending.
“Treasury, however, provided no effective policy to compel the extension of credit -- despite our strong recommendation, not even a request that banks report how they used TARP funds. It was only in April of last year, in response to recommendations from our office, that Treasury asked banks to provide that information, well after the largest banks had already repaid their loans. It was therefore no surprise that lending did not increase but rather continued to decline well into the recovery.”
You can find a link to the column here.