Kearneysville, WV. The Toxic Asset Relief Program (TARP) expired on October 3. It’s hard to believe that only two years ago the experts were telling us that our economy was teetering on the brink of disaster. Congress, working with the Bush administration, approved this program as the first of several phases of the so-called “bail-out” to stave off the apocalypse. Now that the program has officially expired, it might be worthwhile to consider what was accomplished. As with many public policies, the results are mixed.
1) The world didn’t end. Considering the dire warnings from both Democrats and Republicans in the fall of 2008, this is no small accomplishment. Assuming a causal connection between TARP and the fact that the world as we know it survives, it was surely a success. After all, preventing calamity was its stated aim.
2) According to the Department of Treasury, the cost of TARP will come in at around $50 billion. That’s a bargain in light of the original price-tag of $340 billion. A government program that is almost $300 billion under budget is nothing to sniff at.
3) The big banks are stronger. Bank of America, Citibank, and Wells Fargo have benefited the most. In the fall of 2008, these corporations were teetering on the brink of collapse, mired in a sea of toxic assets, notably in the form of bad mortgages. These banks took TARP money, wrote off their losses, and kept the properties, which they repossessed through foreclosure and subsequently sold. Thus, their losses were covered and they were free to profit on properties that would have sunk them without TARP. Because the large banks were the chief beneficiaries of TARP, banking is more consolidated and centralized than ever.
4) Furthermore, one might argue that the real losers were the homeowners. Granted, many were in way over their heads, and plenty of blame lies with consumers who ignored any notion of limits in their home purchases. However, at the end of the day, a few big banks came out of their TARP experience with solid profits, while millions of homeowners lost their homes. It’s not hard to imagine that many former homeowners might feel that the deck was stacked in favor of Bank of America.
5) This seems to demonstrate what we all have come to recognize: if a firm is considered so important that its collapse will ostensibly endanger the nation’s economic health, the government will do what is necessary to keep it afloat. If you are too big to fail, you will receive public funds regardless of whether or not your troubles are the result of mismanagement, carelessness, or hubris. The incentive is clear: get big or at least make every attempt to create the impression that you are indispensible. If you succeed in that, you can rest easy that the cavalry will show up in the nick of time. If you are small and “unimportant,” well, the market must be allowed to select winners and losers.
6) The state after TARP is more powerful than before TARP. The principle is pretty simple and it’s something we at FPR have emphasized from the beginning: a centralized economy requires a centralized government. The two go hand-in-hand. This is why the decentralization of Washington, as noble as that goal is, will never be accomplished without decentralizing the economy. The long-term health of our nation requires a serious redirection toward local economies and local government. The various crises looming on the horizon—peak oil and the entitlement crunch being just two—may force this realignment sooner than we think.
7) The apparent success of TARP may serve to create a sense that things have “returned to normal” and thereby only kick systemic problems down the road toward our children. If we don’t take this brief respite to consider how our private lives are implicated in this, we will have lost an important opportunity to make changes freely and of our own accord. If we don’t reacquaint ourselves with old-fashioned virtues like thrift, self-control, and personal responsibility, we will be ill-equipped to shape a world worth passing on to our children. The concept of limits must be brought front and center in our thinking. Infinite economic growth must be recognized as a chimera. Sacrifice for future generations must be seen as a noble act befitting responsible adults.
8) Ironically, although TARP was signed by President Bush, a significant percentage of Americans associate it with the Obama administration. The apparent disjunction between Wall Street and Main Street—most notably seen in unemployment rates hovering around10%—will likely hurt the Democrats in November. The Republicans stand to gain the House and perhaps, in a long shot, the Senate. That the Republicans generally supported TARP and have in recent years spent public money with all the feverish enthusiasm of a Great Society Democratic does not create much room to hope that a Republican Congress will make the serious, systematic, and long-term changes necessary to right the ship.
9) Finally, TARP, it might be said, was instrumental in the birth of the so-called Tea Party. It appears that at least some of the Tea Party candidates will win seats in November. This is one measure of the influence of this loose alliance of groups motivated by anger and disturbed by a sense that the very heart of the republic is at stake. Nevertheless, getting elected is only a first step. The true measure of the Tea Party will be how effective their candidates are in halting the growth of Leviathan. Two bits of advice: First, Tea Party candidates must eschew any ambition to get re-elected. This is not to say that some won’t be re-elected, but if that becomes their focus, they will quickly fall into playing the game of election politics, which invariably involves promising to spend money. This will undercut their very reason for holding office. Second, they will not be effective in significantly reducing the size of the federal government until they recognize that, as I noted in #6 above, decentralization is all of a piece: economic and political decentralization must occur together. As such, they must rewrite or eliminate laws and regulations suited to (and written by) powerful economic entities. Laws and regulations that, intentionally or not, disadvantage the small proprietor are unjust and facilitate the growth of the state. Simply eliminating these would go a long way toward creating a level playing field and propagating an economic system where the small property holders are the linchpin, property holders whose economic freedom facilities and bolsters the political freedom they cherish.
I’m not sure I agree with the end of point 1. I believe the official end of the recession, belatedly-announced recently, was before the TARP spigot was opened (though perhaps after the emotional boost of TARP’s passage).
“The state after TARP is more powerful than before TARP”
Yes, in theory, the state is now powerful than it was before TARP. There are prognosticators out there warning that depression and worse loom just past the 2012 elections, and despite its new “power” the state cannot get its life blood from the wilted turnip of a nation with staggering debt and high unemployment.
While we can’t put the TARP genie back in the bottle, I can’t help but wonder – what would have happened if TARP had not passed, and those banks with the toxic assets had been allowed to fail? I agree that sacrifice for future generations is a noble act befitting responsible adults. What would have happened if we had made that sacrifice back in the fall of 2008?
The state is larger, but even more subordinate to the banks, because the big banks are now even larger than before the fall; “Too Big To Fail” is now even bigger and the system is actually even more fragile.
The public tends to confound the TARP with the stimulus, which is not a big error. But the TARP was only a part of the bailout; larger parts involve transferring of private debt onto the Fed or Gov’t balance sheets, “Quantitative Easing”, FDIC increases, etc. QE is basically robbing savers of any return in favor of the banks; it is in effect a transfer of profits from savings to the banks.
As far as the responsibility of the home buyers, they were indeed consumed by a consumerist mentality. However, it is the responsibility of the banks to tell people what their limits are; if you go to the “experts” and they tell you to buy a million dollar house, who is at fault?
TARP represents a tremendous missed opportunity for basic change. The banks should have been allowed to fail so that the gov’t could nationalize them and sell the healthy pieces off to regional and local banks, making them stronger, while liquidating the toxic assets.
The “recession”, is not over. Does it feel over? Ask people on the street. Ask anyone you meet. Money is tighter, banks are stronger, Washington is stronger. We the people are much weaker.
“the decentralization of Washington, as noble as that goal is, will never be accomplished without decentralizing the economy.”
This is true. All those anti-federalists should be following in the footsteps of Old Hickory. Kill the bank. Power corrupts and absolute power corrupts to the stars. I’m speaking of the fed and Washington. Working hand in hand for their own agenda, retaining and increasing their power. Their foul stench….I can smell it from here. Their demo-republican pawns are nothing but a front to thievery.
TARP was a great success for them, and a failure to us. We are their little milk cows. Our teats are hooked up to the milk suckers. There is no escape.
“The state is larger, but even more subordinate to the banks, because the big banks are now even larger than before the fall.”
In order to make it a true statement, I would modify John Médaille’s words to read as follow:
“The state is larger, and the banks are more subordinate to the state than before, because the big banks are now even larger than before the fall.”
We still have no idea what really happened. Shotgun Paulson’s Great Nation Robbery was not meant to rescue our economy. It smelled like blackmail to me at the time, and still smells like blackmail. Nobody in the media has even asked the right questions yet.
Anyhow, nothing that happens in DC will make any difference. A few of the Tea Party types may truly want to change things, but they’ll be immediately blackmailed into submission by their own Congressional staffers, who are as permanent and corrupt as any Executive bureaucrats.
Our only hope is state governors. When enough of them get angry enough to band together and secede (or threaten to secede) then things will begin to happen.
Amen. And yes, it was total blackmail. Dig back into the files and find what Paulson was telling congressmen behind closed doors. Simply criminal.
Again, well said. I agree on your last point. When the state leaders finally get the cherries to send in the guard……only then will we be in a position to begin stopping the thievery and slavery.
We the people……ha! When was the last time anyone thought of a Washington bastard as one of us?
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