Before HAMP had even begun, it had already become a political punching bag. It was, after all, the Obama administration's newly announced mortgage relief plan that sparked CNBC commentator Rick Santelli's infamous rant that some say ignited the tea party movement. Ever since, TARP, or just "the bailout," has been a consistent rallying cry for the graying tea party masses.
Sen. Robert Bennett (R-Utah) saw firsthand the political blowback. For supporting TARP, Bennett was dubbed Bob "Bailout" Bennett, jeered at Utah's Republican Party convention with chants of "TARP, TARP, TARP," and defeated in his reelection primary by a tea party-backed attorney and the conservative groups who mobilized against him. Rep. Bob Inglis (R-SC), who was trounced in his state's primary this summer, told Mother Jones in August that his bailout vote led in part to his crushing 42-point defeat. Even Democrats are bailout bashing: Missouri secretary of state Robin Carnahan has taken to calling Republican incumbent Rep. Roy Blunt, her opponent in the state's Senate race, "Mr. Bailout."
Another GOP supporter of TARP, the financially savvy Sen. Judd Gregg (R-NH), isn't running for reelection this fall. Whether his bailout vote figured into his decision to retire is unclear. What's obvious is that Gregg would've faced plenty of flak for his TARP support—criticism Gregg just can't fathom. TARP, Gregg told Politico, has "become demonized on the left and the right by screamers—Glenn Beck and Rachel Maddow—who have no interest in the facts; they’re just interested in hyperbolizing and generating attention."
An American Lost Decade?
TARP may be ending on paper, but in reality the bailout will linger for years to come. As the Wall Street Journal recently reported, more than 600 banks still hold $65 billion bailout funds, including Suntrust ($4.9 billion) and Regions Financial ($3.5 billion). Unwinding these remaining investments will no doubt last years into the future.
It's nonetheless worth asking now: Did TARP do its job? Was it a net gain for the banks and auto companies and homeowners and the economy as a whole? According to Herb Allison, a former Merrill Lynch executive and the top TARP chief until recently, the answer is yes. "When all is said and done, this program will be viewed as one of the most effective and least costly forms of assistance," Allison told Bloomberg BusinessWeek. "TARP was not perfect," adds Treasury Secertary Geithner. "But it has delivered in ways few could ever have imagined."
Watchdogs and financial experts are far less sanguine. TARP's generosity to mega-banks like Bank of America and Citigroup "greatly exacerbated moral hazard problems," writes Kenneth Rogoff, a Harvard University economics and public policy professor. While Rogoff believes TARP averted a second Great Depression, the bailout, he argues, has created an implicit government guarantee of the financial markets and failed to set the economy on the path to recovery.
Damon Silvers, a member of the Congressional Oversight Panel and counsel at the AFL-CIO, says he agrees that TARP prevented the wholesale collapse of the financial system and pulled us back from the brink. But he fears the bailout didn't go nearly far enough in making banks healthy again. Thanks to clever accounting measures, he argues, billions in toxic assets remain on banks' balance sheets but out of public view; lending to small businesses, meanwhile, remains paltry.
In Silvers' view, Treasury officials should've done to Bank of America and Citigroup and the other wounded banks what they did to Chrysler and GM. Instead they've set the stage of what he believes will be a Japan-like era of stagnant economic growth, America's own lost decade. "What we effectively did with TARP was preserve big banks, revitalize inter-bank credit markets, keep asset-backed security markets functioning, and we revitalized the bond markets," Silvers says. "On Main Street, there's no credit." He went on to say, "Like the Japanese, we're going to eventually have to [restructure the banks]. We're just postponing the inevitable here, at great cost to ourselves."