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.