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- iHaveNet.com: Politics
by Danielle Kurtzleben
June 1, 2011
Five reasons the controversial bailout program worked -- and five reasons it didn't
Chrysler has repaid much of its TARP money, GM is hiring again, and the financial sector is booming. Two and a half years after the Troubled Assets Relief Program was conceived, these are encouraging signs that the program my have helped avert disaster. However, despite the government's best efforts, the housing market remains anemic. Furthermore, many argue that the infusion of recovery funds further promotes bad behavior on the part of banks. So was TARP a win or a wash? Here are five arguments in the program's favor -- and the top five against it.
1) Economic antifreeze
In propping up major financial institutions, TARP provided relief from the immediate problem of frozen credit markets, according to James Gattuso, a senior fellow in regulatory policy at the
2) A government program that costs less than advertised
When initially conceived, TARP was intended to purchase or insure
3) Withdrawing money from the banks
The portion of the program specifically devoted to helping banks was particularly successful. The government invested
4) Revving up the auto industry
Auto companies bailed out by TARP funds have recently shown new signs of health. In 2010, GM saw its largest profits since 1999, and the company has also recently announced 4,000 new jobs. In addition,
5) Jobs, jobs, jobs
But the program is not without its critics. They point out that its housing initiatives have largely been ineffectual, and that it remains wildly unpopular with a public that resents bailing out institutions that nearly brought the U.S. economy to ruin. Here are five ways in which TARP has been a failure.
1) Little forestalling of foreclosures
The least successful area of TARP has been its housing initiatives. The Mortgage Loan Modification Plan, which sought to help homeowners stave off foreclosure, has barely made a dent -- of the
2) The wrong message
By preventing large institutions like
Bank of America and
Citigroup from failing, the government risked creating a problem of moral hazard -- that is, of promoting irresponsible bank behavior that might not occur without the prospect of future bailouts. Earlier this year, then the special inspector general for TARP, told a congressional committee that the bailout of large financial institutions promoted a "'heads I win, tails the government bails me out' mentality."
3) The Fed did the heavy lifting
Baker says that Federal Reserve programs, such as providing low-interest loans to financial institutions, played an indispensable part in promoting recovery to the financial sector. "We had TARP and on top of that, we had pretty much open access to the Fed through the discount window and the lending facilities. So you had some very, very serious support for the banks," he says. Rogoff goes so far as to call TARP "symbolic." "The real honest truth is a lot of what was done was done through the Federal Reserve and was really risking taxpayer money through the back door," he says. "TARP essentially put a seal of approval on the general approach of the government to try everything to prop up the financial sector."
4) Toxic politics
While TARP's effectiveness is arguable, it is indisputably an unpopular program with voters. Indeed, the public deeply dislikes the program, even as it fails to understand it. In April 2010, a
5) What worked could have worked better
Rogoff believes that the government could have reaped far greater rewards from TARP by taking a tougher stance toward financial institutions. He calls the
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