TARP’s Failures Described By Congressional Oversight Panel

The Congressional Oversight Panel says in a new report that the TARP did one thing and did it well. It prevented the terrible panic in the credit markets from spreading while stabilizing the banking system. That is as far as it went, which means the a number of other goals were never met.

The new COP report faults the Treasury for doing nearly nothing to help the average consumer and small business.

Among the worst faults of the program were its failure to help build an environment for improving unemployment, its lack of effort to create a system for cutting the rates at which home foreclosures are growing, and the establishment of  incentives for financial institutions to increase lending.

The TARP also did little to take toxic assets off the books of large banks or curb the rate of bank failures.

All of those criticisms may be true but they do not acknowledge  the TARP was created in an atmosphere of turmoil amidst concern about a global financial meltdown. It was by its nature a series of emergency measures that needed to carry out their major goals in a few short weeks. By the time those goals had been largely realized the Adminstration that created the program with Congress was out of office. A large part of the TARP funds was in the vaults of troubled banks.

It is probably not reasonable to ask of a program something which was not part of its charter when it was formed. The authors of the bill to create the TARP could not have anticipated the massive increases in unemployment and foreclosures that happened between the end of 2008 and now. The credit crunch among consumers was only beginning a year ago, and has become severe in the last three quarters as the latest Federal Reserve data shows. It is fair to say that TARP money did not come with provisions for part of the capital going to banks to be loaned out. But, even with tens of billions of dollars in government money it is not clear that financial firms were on a footing to take the risks of expanding their loan portfolios.

The TARP may have fallen short of what the COP sees as its goals, but those goals were no part of a program that grew out of chaos and had as it main goal the re-establishment of order in the financial world.

Douglas A. McIntyre