Marketplace Scratch Pad

Was TARP worth it?

Scott Jagow Oct 5, 2009

As you may know, TARP’s”watchdog” Neil Barofsky made comments today about what happened a year ago. Barofsky says decision-makers bent the truth, but they were clearly convinced that economic devastation was imminent.

From the Hill:

He offered one example: In the months before Congress authorized the TARP, then-Treasury Secretary Hank Paulson insisted some firms were healthy enough to resume lending shortly after receiving federal dollars — an argument Barofsky’s report disputes.

“As we disclose and describe in our audit, this just wasn’t an accurate statement,” Barofsky said. “And as we note in our report, I think that those statements raised expectations and hurt Treasury’s credibility.”

As for taxpayers getting their money back, Barofsky says it’s… “extremely unlikely that we’re going to have a dollar-for-dollar return…realistically, we have to be upfront with the American people.”

CNN Money has a special report looking back at TARP. Was it a good call?

YES

“People will never understand the enormity of the disruption that we never saw: No one would have had credit, no one could have accessed their savings,” said Edward Gainor, a partner at Bingham McCutchen in Washington who represents funds dealing with distressed assets. “As a society, we shouldn’t regret that some amount was invested in keeping the wheels on the cart.”

MAYBE, BUT A DISASTER EVER SINCE

“If you get a very expensive treatment that saves your life, but you don’t sort out the underlying problem, it may not come back for awhile, but it will come and get you again,” said Simon Johnson, professor of global economics and management at MIT.

Johnson contends that the government had an opportunity with TARP to really fix what ailed the economy: Regulators could have thrown out failing corporations’ management, ensured that bad banks are less politically powerful and reformed regulation to rid financial institutions of irresponsible practices.

Instead, the big banks have only gotten bigger and regulatory reform is still on hold. Nomi Prins at The Daily Beast worries that by delaying the fix, much worse could be on the way:

What they and Bernanke are really saying is, let’s watch over the really big Lego towers and hope they don’t fall. What they should be saying is–cue 5 year old–let’s divide up the tower into mini-towers, which will reduce the possibility of a fall. Meanwhile, the trillions of dollars in bailout support that the big banks have received this year confirms the notion that whoever is watching, they will be protected from failure–with public money and lots of Fed backing.

Barofsky on CNBC:

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