Kill the TARP

by Marilou Moursund on October 27, 2009

in Banks,Commercial Real Estate,Credit Crisis,Fiscal Policy,TARP

Like the authors of this in the WSJ, we initially supported the authorization of the Troubled Asset Relief Program, or TARP, as the quickest way to instill confidence in the financial system.  The credit markets were on the verge of totally freezing up after the bankruptcy of Lehman Brothers and the virtual bankruptcy of AIG.

However, it quickly became hostage to special interests in the Administration and Congress, and the various bailouts bear little resemblance to the legislation”s original intent.  I couldn”t believe it when the Administration crammed down the automakers” debtholders in favor of the unions.

There has been little to no transparency on how TARP funds have been used, and the 10/21/09 report of the SIGTARP (Special Inspector General of the TARP) details many of these problems.

From the Executive Summary of the report:

“As to effectiveness, there are significant signs of improvement in the stability of the financial system.  Although the causes for such improvement are many and complex, it appears that the dramatic steps taken by the U.S. Department of the Treasury (“Treasury”) and other agencies through TARP and related programs played a significant role in bringing the system back from the brink of collapse.  On the other hand the risk of foreclosure continues to affect too many Americans, unemployment continues its rise, and the stresses on the commercial real estate market threaten to increase the pressure on banks and small businesses alike yet again.

On the cost side of the ledger, although it will take many years to assess all of the costs associated with TARP, financial and otherwise, this report begins to categorize them.  It is useful to analyze any Governmental intervention in the market like TARP against three distinct types of cost: the financial cost to the taxpayers; the “moral hazard” damage to market incentives created by Government intervention; and a cost that has received scant attention thus far–the impact on Government credibility due to the failure to explain what is being done with billions of taxpayer dollars transparently and forthright.  The past year has demonstrated that TARP”s costs, in each category, could prove to be substantial.”

The program expires on December 31 unless extended by Secretary Geithner.

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