Yesterday was the one year anniversary of the passage of the TARP bailout:
On the evening of Thursday, Sept. 18, 2008, in the midst of the financial meltdown, Federal Reserve chairman Ben Bernanke, along with Treasury Secretary Hank Paulson and Securities and Exchange Commission chairman Christopher Cox, traveled to Capitol Hill to meet with Congressional leaders in House Speaker Nancy Pelosi’s conference room.
(…)
Bernanke explained to lawmakers what type of situation they would be facing if they did not act.
“You could see a 20 percent decline in the stock market, unemployment at nine to 10 percent, the failure of GM, certainly, and other large corporate failures,” Bernanke told lawmakers, according to James Stewart in the Sept. 21, 2009 issue of “The New Yorker.” “It would be very bad.”
Congress acted. On Oct. 3, the $700 billion Troubled Asset Relief Program was enacted.
But since Bernanke’s comments on that Thursday evening last September, have developments supported his argument that the government needed to act?
As of Sept. 18 this year, the stock market had declined 13 percent, the unemployment rate had risen to 9.7 percent, GM and Chrysler both filed for bankruptcy, and large companies such as AIG and Merrill Lynch had been taken over or propped up by government funds.
Supporters say the program pulled the financial system back from the brink of disaster. The stock market has rebounded, banks are making profits again. Disaster, they say, has been averted.
Detractors counter by arguing that the program only rewarded Wall Street, the same people blamed for causing the mess in the first place. It has not, they say, helped Main Street, as unemployment has risen to a 26-year high and foreclosures have continued to climb.
Meanwhile, the bailout morphed into a much bigger program, with money for insurance companies and automakers.
According to watchdog Neil Barofsky, the special inspector general for the program, it is “highly unlikely” that taxpayers will ever get paid back their full investment.
Of course, supporters of the program will point to what didn’t happen as proof that the plan worked. We didn’t collapse into an economic crisis worse than the Great Depresssion. We didn’t get invaded by the Chinese. The world didn’t end in the battle of Armageddon.
None of that means, of course, that TARP actually prevented anything. All it really did was prevent that kind of necessary liquidation of bad assets that the market requires. That liquidation will come, eventually.
Moreover as Jason Pye notes, TARP is just another in a long line of “emergency” laws that went far beyond their intended use:
TARP program was passed out of a since of fear, much like the USA PATRIOT Act. Members of Congress lined up to cast away your tax dollars as they cast aside the Fourth Amendment in 2001. I understand the fear of the unknown, but too often our representative react without clearly thinking through the impact of their votes.
Indeed.
