Chapter closes on vilified US bank bailout
Handing over 700 billion dollars of taxpayer money to Wall Street bankers who caused the global economic crisis was never going to be popular.
And so it proved for the much maligned Troubled Asset Relief Program, or TARP, which will begin its slow wind-down on Sunday.
Two years to the day after it was enacted, the always controversial bailout has a mixed legacy of financial success and political derision.
As far as costs go, TARP has been an unmitigated success story.
The program — introduced to prop up rapidly failing financial markets — is now projected to cost the government less than 50 billion dollars, a bargain considering the economic growth that could have been lost.
Pending a decent sale of the government’s stakes in Citigroup, AIG and General Motors, the US taxpayer may realistically make a gross profit.
It was not always so. In the early days of the massive program even government-appointed TARP watchdog Neil Barofsky said the program would “almost certainly” result in a loss for the taxpayer.
Despite the reduced price tag, TARP’s political legacy has been as toxic as the dodgy mortgage investments that made it necessary.
Most of the 74 Senators, and 263 House representatives who eventually voted for the bill have spent the last two years distancing themselves from it.
Republicans have also spent 24 months trying to tie it to President Barack Obama’s administration and Democrats have tried to remind voters it was actually signed by his predecessor George W. Bush.
For those who argued the bailout was morally corrupt, evidence was plentiful.
It quickly emerged that banks who had held out their cap for tens of billions of dollars in aid and pushed the global economy into a ditch were paying staff bonuses totaling billions of dollars.
Stories of traders taking private jets to champagne-fueled parties did not help supporters either.
Two years on TARP remains as controversial as ever.
“I see this as a moment when the large banks basically induced enough fear to get the public to bail them out and we are supposed to be happy because they paid the money back,” said Dean Baker, director of the Center for Economic and Policy Research and a fierce critic of the bailout.
Baker and others are also angry that despite the damage done by banks’ unsavory dealings, the industry has changed little, opposing some recently passed reforms tooth and nail.
“We could have put any conditions we wanted and basically they got the money with no conditions.”
Some, like Baker, argue that the bailout was not even necessary, that fears of a second Great Depression were overblown and that other paths to ease the liquidity crunch could have been found.
“It was a crisis for them, not a crisis for the economy or the country.”
It is impossible to say what might have happened had TARP not been enacted, but there was at least a glimmer of what could have been when lawmakers initially voted against it.
After House of Representatives voted against it on September 29, 2008 the Dow Jones Industrial Average plunged 778 points in one day, one of the largest ever one-day drops. Representatives quickly changed their mind.
Steven Shafran, a former senior advisor to TARP’s architect, then Treasury Secretary Hank Paulson, has few regrets.
“I don’t think there is anybody who thinks that the world would be better off without TARP,” he said.
“People are fair to criticize some of the things we did, and all of us could have done a better job, I accept that. But the government needed to step forward, and if it hadn’t then the country would be in awful, awful shape.”
Both critics and supporters agree TARP’s legacy has some serious repercussions for economic management, making any future bailout or stimulus politically impossible.
According to Baker that is a problem because programs that were designed to keep the economy afloat have left it treading water, but only just. Avoiding a second recession is not assured.
“(TARP) has done a horrible job of undermining support for government intervention. In the public’s mind there is not very much difference between the stimulus and the bailout.
“If we are going to get the economy going again we are definitely going to need more stimulus, and it is very very hard right now to get the political support to do that.”
Source: AFP