TARP has become a dirty word in our nation's political discourse. Few terms elicit such anger from voters and politicians.
In many ways, that's understandable. No one wanted to bail out Wall Street. No one wanted to use taxpayer dollars to rescue an industry that helped cause the worst economic crisis in a generation.
It was unfair. It was appalling. But it was necessary. We had no other choice.
Two years ago, we stood at the brink of an economic catastrophe. Ordinary American families were questioning whether their money was safe in banks. A growing financial panic threatened to sink our nation into an economic downturn that rivaled the Great Depression.
A bi-partisan majority in Congress responded by enacting the Troubled Asset Relief Program. The debate over this issue was heated. On October 3, 2008, when TARP became law, one member of Congress even went so far as to say, "I don't think it is too much of a stretch to say this may be the day America died."
Two years later, with TARP officially set to expire today, it's an appropriate time to look back and evaluate that program's effectiveness. And now that the fog of an intense financial panic has lifted, it's clear that the critics and cynics were wrong. TARP has proven remarkably successful at stabilizing the economy and laying the foundation for future growth.
Today, our economy is healing. Because of the enormity of the challenges we faced, unemployment is still unacceptably high and growth has not yet reached an acceptable pace. But we're on the path to recovery. Businesses have added jobs for eight straight months. Private investment and confidence in banks have returned. The cost of borrowing for businesses, municipalities and individuals has declined dramatically.
The TARP investments that the Bush and Obama administrations made in GM and Chrysler, as well as the hard decisions that those companies made to adapt and compete, turned those automakers around and saved at least one million jobs. Since GM and Chrysler emerged from bankruptcy, the auto industry has added 76,300 jobs - the strongest growth in 10 years - and for the first time since 2004, all of the big three American auto companies are operating profitably.
In fact, independent experts have estimated that overall, without the federal government's response to the financial crisis, including TARP, there would be nearly 8.5 million fewer jobs today and the unemployment rate would exceed 15 percent.
The question, then, is why does TARP remain unpopular, despite its success? I believe, in great part, it's because a number of myths about the program stubbornly persist.
Many people think that TARP cost $700 billion. But Treasury is now confident that the lifetime cost to taxpayers will be less than $50 billion. Repayments have continued to exceed expectations. Three-fourths of the TARP funds provided to banks have already been returned. And the exit strategy AIG announced last week puts taxpayers in a considerably stronger position to recoup our investment in that company.
Many people think that TARP funds only went to Wall Street. But more than 450 small and community banks participated in TARP, which helped them deliver credit to local small businesses and families. Additionally, more than 3.3 million struggling homeowners have had an opportunity to stay in their homes or find more affordable alternatives because of foreclosure prevention programs either financed by TARP or created as a result of TARP in the private sector.
Many people think that TARP created a precedent for future bailouts. But President Obama and Treasury Secretary Geithner worked tirelessly with Congress to enact the Dodd-Frank Act, which will ensure that the American people are never again put on the hook for the reckless acts of a few financial firms. That law gives the government new tools to shut down and dismember failing institutions rather than bail them out with taxpayer dollars.
Unfortunately, the untold story of TARP's success has been lost in the heated rhetoric of today's politics.
TARP was enacted in an all-too-rare moment of bipartisan cooperation in Washington - with support from both sides of the aisle, including from Republican leaders Representative John Boehner and Senator Mitch McConnell. The Bush Administration began the implementation of TARP and the Obama Administration is finishing the job.
Now, many of those who supported TARP have decided that, politically, they need to be against it. But removed from the pressures of a November election, these individuals should be proud of the hard choices they made to help save our economy from a devastating collapse.
And perhaps someday they'll say what is now, for them, the unspeakable: TARP was a success.
Herb Allison served as Assistant Secretary for Financial Stability from 2009 until September 30, 2010 at the US Department of the Treasury, where he oversaw the TARP program.
Americans called, emailed and snail mailed their elected officials, pleading with them not to effect the bail out. But they, of course, knew better than us, and they went ahead to do what they thought was best (?)... and here we are....
You say things are better now... but there are a lot of people in America who would beg to differ.
And I see that seniors w/ a fixed income are NOT getting an increase yet again! for the second year.
You will forgive me if I seem to have a jaundiced view?
People just don't understand how broken the system was and how little was left to work with. The fact that the bailout was effective in some measure meant that it lessened the impact of the crisis on most people's lives. As bad as it is, it could have been so much worse. Proving a negative has always been a political liability and Americans are very demanding and impatient. The ones complaining the most about how the government efforts aren't effective enough are the same crowd pushing a "smaller gubmint" agenda. Go figure.
Nobody thinks the only option to TARP was to do nothing. Why make that claim.
Let the country slip into a deep depression, kill off 50% of the banks, cause millions to lose jobs, and force us to start our economy over. An extremely painful decision causing agonizing losses to everyday Americans, and horrible capital losses by almost everyone. Including the massive banks that basically committed fraud against the whole country.
On the plus side, the process of not bailing out the economy would have enraged millions in the process, and we would have ensured we were NEVER placed in this position again. People would have been hung from the lampposts on Wall Street, and banks would be banks again.
The Federal Government could have created state banks and bailed out businesses and the folks that needed it, and created massive infrastructure programs along with science and education grants, rebuilding our economy of viable, long term green growth.
But our people are far too fragile for that. Besides, the wealthy white guys that created this mess would not have survived.
Sure, many small investors would have suffered, but if you play the game, you have to know you can lose.
I sure hope they are able to create stronger rules, because without them, we are doomed. It is only a matter of time before commercial real estate crushes the banks again, as well as massive credit card defaults to add to the current foreclosure crisis.
Let's say we're neighbors and, because of my reckless behavior, I burn down both our houses. Then, in order to pay the fine for my crime, I raid your bank account to get the money. Then some time after I rebuild my house with your money, I finally refund a small portion of the money to your bank account, and call us even, even though your house is gone. Sound fair?
It also provided no teeth to force banks to deal with the prime source of the problem, the houses they had sold at huge profits to people unable to deal with the rising interest rates of their own financial instruments.
You may find my second portion to be ridiculous. But I find it ridiculous to provide money to banks in order to prop them up while they systematically gain property and profits while taking millions of Americans completely out of the financial picture.
The result has been the collapse of an entire portion of the US GDP, typically between 17-24% annually. Materials and hardware suppliers at the manufacturing, transportation, wholesale, retail, and installation levels have all been heavily effected. Homebuilding has been all but destroyed in huge parts of the nation. What used to supply a rather steady and dependable supply chain of jobs and job creation is now virtually dead.
But, thank God we saved the bankers, and they'll be able to play with money yet again.
Frontline's excellent documentary on this showed how large corporations were calling the FED as things started to collapse, saying that they were not able to get loans for operating capital. How long after corporations can't get operating capital would they start massive layoffs, cascading from corporation to supplier to wage earner? That's what TARP prevented.
I don't like how it was done- VERY sloppy adminstration, and possibly fraudulent. I'm more concerned about stopping this in the future than I am about putting CEO's in jail. I want Wall Street corporations brought to heel, and held there for the rest of my days at least. But TARP was very necessary.
Oh, really? What about the choice NOT to dismantle key regulatory laws that would have prevented the economic collapse, starting with Reagan's Great Deregulation, then the Glass-Steagle act in the late 90s, and accelerating under Bush the Lesser?
What about the choice NOT to elect a President inept enough to install insider regulators--or worse, unqualified and often buffoonish friends and political cronies, foolish enough to follow the advice of men becoming obscenely rich on their previously illegal schemes, ignorant enough to ignore all the warnings of the coming collapse given to him by dozens and dozens of bankers, economists (including two Nobel laureates) and investors, and turn a blind eye to the gathering storm? A president whose own brother Neil was involved up to his neck--and almost jailed---in the most costly previous bank bailout in our history (the Savings and Loan Scandal of the Reagan era)?
What about the choice NOT to have vigorous regulators enforce laws and regulations on an industry that had crashed the world's economy of its own greed already once in the last 70 years, and not to prosecute known insider trading, not to vigorously pursue known investment fraud, not to even acknowledge the obviously looming financial disaster?
Just what do you mean exactly, Mr. Allsion, that we "had no choice".
I think that what he means is, after all those incredibly foolish things were done, a bailout was necessary to keep that whole house of cards (somewhat) afloat. Plus, of course, you can't let the people responsible feel any actual pain. That would be cruel. Much better to have a few million others destroyed instead because, you know, that's how Americans help other Americans during times of crisis.
All I can say is, thank God everything is now A-OK. (That is, if you don't mind having lost your house, your job, or seeing your property incredibly devalued while the perpetrators bind up Congress trying to hold onto their ill-gained earnings at your expense.)
I do not believe they lost any money. All of the big banks and corporations made out like bandits and how could they be making money if no one is borrowing? Humm.
The banks and corporations are not ours but owned by overseas interests.
We must not let them succeed at historical revisionism...for if we fail to confront our mistakes honestly, we are only doomed to repeat them.
LOL, I can't wait Herbert cause in a few years YOU will be eating cake over that statement. I will file it for future aceness
What a load of complete BS! The Tarp has NOT saved anyone or anything! It's just delayed what will now be a very slow death instead of what could have been a quick death and the birth of new clean and honests banks, business and financial systems. Propping up the cheats, the crooks, the snake oil salespeople, what will that achieve in the long term?
This new found glory will last 10 years max. THEN you will see why they should of let the corruption die. The pain would of been worth it. Now you will have a lingering painful cancer to the end.
http://www.zerohedge.com/article/hr3808-equivalent-tarp-2-and-obamas-get-out-jail-gift-card-high-frequency-signing-scandal#comments