TARP, 1 Year Later

A year ago Tuesday, the U.S. House of Representatives rejected the Bush administration's proposed $700 billion financial bailout plan, causing the largest one-day point drop in Wall Street history and the loss of $1.2 trillion in the value of American stocks.

Within days, the House had reconsidered and President George W. Bush had signed the Emergency Economic Stabilization Act of 2008, creating the Troubled Asset Relief Program. On Saturday, TARP turns 1. Last week, the program got its one-year check-up. The assessment was mixed.

"(T)here is little question that the dramatic steps taken by Treasury, the Federal Reserve and the FDIC through TARP and related programs, in the face of what can only be described as panic conditions, played a significant role in bringing the system back from the brink of collapse," Neil Barofsky, the special inspector general for the TARP program, told the Senate Banking Committee.

"Whether the other policy goals of the EESA are being met, on the other hand, is unclear."

By the most critical measure, TARP has been a success — it restored confidence in the financial system. A conservative Republican president and a Democrat-controlled Congress were willing to massively underwrite banks to get credit moving again, even at the cost of adding $700 billion to the deficit and the national debt. As it had in 1933, the government would step in when the free market failed.

But in many specific ways, Mr. Barofsky said, TARP's goals haven't been met.

"(T)he risk of foreclosure continues to affect too many Americans; unemployment continues its rise to levels that Treasury has characterized as 'unacceptable'; the so-called 'toxic' assets that helped cause this crisis for the most part remain right where they were last fall — on the banks' balance sheets; and it is becoming more and more clear that the commercial real estate market might be the next proverbial shoe to drop, threatening to increase the pressure on banks and small businesses alike yet again."

Indeed, some banks have prospered under TARP, so much so that they've begun repaying TARP funds, in part to get out from under federal restrictions on executive compensation.

Mr.

Barofsky said it's too early to tell whether the nearly $70 billion invested in AIG, the giant financial insurance firm, or the nearly $80 billion invested in General Motors and Chrysler, will ever be recouped. "It is extremely unlikely that the taxpayer will see a full return on its full investment," he said.

On its birthday, there are two special concerns with TARP. The first is the slow, almost negligible, pace of the $50 billion effort to modify home mortgages. Even as banks have recovered their footing with the help of TARP funds, they've been slow to modify mortgages, and federal mortgage relief programs have been inexcusably slow getting off the ground.

The second big problem is what Mr. Barofsky called "basic attitude" of the Treasury Department toward transparency and accountability. "TARP largely remains a program in which taxpayers are not being told what most of the TARP recipients are doing with their money and will not be told the full details of how their money is being invested," he said.

President Barack Obama inherited the TARP program — though as a U.S. senator, he supported it. He now has the duty of seeing that it's run fairly, transparently and accountably. Good government is about performance, not promises.

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