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| Economy |
| No one likes TARP, but it's working |
| 2010-04-03 |
| THE TROUBLED Assets Relief Program (TARP) goes out of business in October, and not many Americans will be sorry to see it fold. The $700 billion program, hastily improvised at the height of the global financial panic in September 2008, broke all the rules of free-market capitalism. It put taxpayer money at risk to bail out banks, auto industries and insurance companies, including one behemoth, American International Group, whose irresponsible gambling in the derivatives markets infuriated even the usually placid Federal Reserve chairman, Ben S. Bernanke. Small wonder that the original TARP legislation barely made it through Congress, amid rhetoric about Wall Street greed and creeping socialism. Yet today it is clear that TARP not only has been successful but, in a real sense, also a great deal for taxpayers. The latest indication is news that the Treasury Department plans to sell its 27 percent stake in Citigroup by the end of the year, at a likely profit of $8 billion. To be sure, these estimates are subject to the volatility of the stock market; by announcing that it wants to exit Citi in the short run, the Treasury risks getting clipped by an unexpected price drop before its self-imposed target date. Still, the sell-off would wean the troubled financial giant off most public support much earlier and at a much lower cost to taxpayers than was once expected. Once the sale is complete, the government will have recouped about three-quarters of the $245 billion worth of capital it pumped into financial institutions. The remainder will take longer to come back, because many smaller regional banks still need a capital cushion against expected commercial real estate losses. Nor did TARP rekindle bank lending as much as had been hoped. But Treasury officials now expect the ultimate cost of TARP to come in at less than $100 billion. Most of that, by the way, will reflect losses not at banks but at General Motors, Chrysler and AIG, the first two of which are not even financial institutions. Had Obama not bailed out the automakers you could have argued that TARP was a substantial success, with AIG as the only failure. Bank lending should pick up once a sustained recovery generates more demand for loans. In short, for all its shortcomings, TARP has fulfilled its chief purpose: to stem the panic-induced collapse of a banking system that -- contrary to much conventional wisdom -- was indeed salvageable without total nationalization. The only fair measure of TARP's costs is in comparison to the costs of the averted collapse. And by that measure, it was a bargain. There is another lesson here: TARP was a bipartisan policy. Conceived by a Republican administration, it passed Congress with votes from both parties and has been implemented mostly by a Democratic administration. When the country faced imminent disaster, political leaders suppressed ideology and partisanship -- and acted, in the national interest. If only they could apply some of that same spirit to problems before they reach the crisis stage. If it's bipartisan, will the Democrats give George Bush the credit he deserves? |
| Posted by:Steve White |
| #7 So how many troubled assets did the Troubled Asset Relief Program relieve? The $700 billion dollar program was sold as the equivalent of the poorly managed, but ultimately effective bailout of S&L's many years ago. Instead it's turned into a political slush fund and the bad assets are still on the books but have been ignored (for now). If a private company did this kind of thing - people would be going to jail. |
| Posted by: DMFD 2010-04-03 21:25 |
| #6 Did the money all get plowed back into the stock market? Is that why the market is so strong? Opinions please. Most of it did. Fundamentally the problem is that governments everywhere are addicted to the revenues from asset bubbles - stocks, real estate, etc. So they are desperately trying to reinflate these bubbles, ie stop deflation. Deflation is good for the economy and most people, for the simple reason, most stuff gets cheaper. |
| Posted by: phil_b 2010-04-03 18:00 |
| #5 Did the money all get plowed back into the stock market? Is that why the market is so strong? Opinions please. |
| Posted by: Besoeker 2010-04-03 08:59 |
| #4 What Glenmore said. TARP did nothing but rescue bank shareholders, ie precisely the people who should have lost their shirts. Nor did TARP rekindle bank lending as much as had been hoped. Understatement of the year. The real cost of TARP is shown in the ridiculously low cost of funds accorded to the insider mega-banks that have not used this massive giveaway to restore lending and credit. In effect, there has been a massive transfer of wealth, perhaps as much as a trillion dollars, from hundreds of millions of depositors and borrowers to a few thousand mega-bank executives and big shareholders. Hard to imagine a more perfect example of regulatory capture. United States of Argentina. |
| Posted by: lex 2010-04-03 03:38 |
| #3 TARP did not fix anything. It papered over the problems so the connected people could get their assets out. The real estate bubble has yet to really pop. The banks are virtually all insolvent at properly marked-to-market values and will be until productive employment can generate income sufficient to pay the price for houses and businesses. - and at an interest rate that can at least somewhat support the (we) aging baby boomers. |
| Posted by: Glenmore 2010-04-03 01:20 |
| #2 that is exactly as it was designed... :( |
| Posted by: abu do you love 2010-04-03 00:41 |
| #1 Oh, yeah, it's working all right - working to further bankrupt America while rewarding Bambi's cronies. >:-( |
| Posted by: Barbara Skolaut 2010-04-03 00:29 |