The Last Stand Of “Too Big To Fail”

The Congressional Oversight Panel, which was established by Congress in late 2008 to oversee the $700 billion Troubled Asset Relief Program (TARP), today released its 30th and final oversight report. Among its findings were:

1) the costs of the program have fallen since its inception but that does not justify the risks that taxpayers and the government took on to implement the program;2)  TARP spread the moral hazard of bank bailouts and increased the perception that some financial firms are “too big to fail”; 3) hurt the public’s perception of the government and 4) operated without the transparency that the public should expect from such an important endeavor.

The panel admits that the TARP “provided critical support to markets at a moment of profound uncertainty” but other actions by the government were just as important. The summary report does not say what those other actions were.

The weakness of the report is obvious. It depends too little on the history of the credit crisis. President Bush signed the legislation to create the program on October 3,2008. Lehman Bros filed for Chapter 11 on September 15. Bear Stearns had already gone under. Citigroup’s (NYSE: C)  stock had fallen from nearly $50 to under $4 in less than a year with the largest part of the slide in the month leading up to the sub-prime mortgage crisis. Ben Bernanke and Henry Paulson were huddled in an office at the Federal Reserve of New York desperate to salvage the fortunes of AIG (NYSE: AIG) and almost all of the country’s largest financial firms.

The Congressional Oversight Panel has the benefit of hindsight, but that is about all it has. Paulson and Bernanke may not be judged as people who made perfect decisions, but they should be judged as two men who took a risk in a matter of days to stanch the bleeding of a bank systems which was on the brink of collapse. TARP may have cost taxpayers money and damaged the perceptions that the average American has of his government. On the other hand, those same taxpayers might have found their entire bank and credit system destroyed in a matter of weeks and witnessed the beginning of a new Great Depression.

The recession had to come, according to some economists. Perhaps it came at the right time, if there is any such thing. The US government was not prepared for the disaster, but senior officials were intrepid enough, smart enough, and lucky enough to make decisions which for the most part worked. To look back and second guess is hardly worth the time.

Douglas A. McIntyre