TARP started with the regulators not the White House. Remember Democrats had a supermajority in congress and to portray this as solely “Bush thing” or driven by Republican or Democrat campaign strategists simply isn’t accurate. It is also misleading to say banks had frozen credit markets. I was an executive for a top 10 bank in 2008. Compared to 2007, total 2008 average loans actually increased $5.4 billion, or 4.5%. What changed were the credit standards and structural requirements to get the credit. I don’t know of any CREDIT WORTHY businesses in 2007-8 that were denied loans (today it’s a different story- but more on that later). It seems to be forgotten that banks are in business to make money and they do that by lending. They want to lend money and need it to survive.
TARP legislation was a wholly a bipartisan effort and also used for the GM and Chrysler bailouts in support of the large Democratic Party (then with a congressional supermajority)constituencies in the UAW, and pals at JP Morgan Chase Sachs (sixth largest campaign contributor to Obama), Citigroup Sachs (seventh largest campaign contributor to Obama) and Goldman Sachs (second largest campaign contributor to Obama) . TARP money is also being spent is to support the "Making Homes Affordable" plan, which was implemented on March 4, 2009, using TARP money by the Department of Treasury to offset individual foreclosures (albeit badly).
The real purpose of TARP was to avoid a disaster like the savings and loan crisis of the ‘80s and ‘90s and stabilize the financial markets. The FDIC simply could not fund the bank failure/losses at the scale being (wrongly) estimated at the time. (I will spare all of you my normal rant on the speed and quality of large bureaucratic forecasting, decision making and implementation). So the FEDs came up with a plan to have large solvent banks acquire smaller failing ones to avoid the losses to the FDIC and the necessity to build an infrastructure similar to the Resolution Trust Corp of the S&L failure days. Banks were selected, many (including the one I worked for) were TOLD to take the money and solve the FDICs problem for them.
For more on that:
U.S. Bank CEO: TARP program is ?lousy? - San Francisco Business Times
Unfortunately, the some politically connected institutions with real problems (i.e. Wall Street, the unions to preserve jobs) that actually needed the money leaned on the FEDs to get it and the program expanded. This is followed by the media anti-capitalism rants (although this smacks more of economic Fascism) and all banks were smeared by the same brush. Ironically the realy culprits at Fannie and Freddie and their congressional sponsors are largely ignored.
Timeline shows Bush, McCain warning Dems of financial and housing crisis; meltdown - YouTube
Fact is, TARP was successful in goal #2 - market stability. It will also reward the government with additional Federal revenues. Under TARP the cumulative dividend payable under the preferred stock that banks were required to issue to the Treasury pursuant to the program started at 5% and increases to 9% after 5 years. This represents 3-4 times the cost of capital over the banks normal sources. (What is the interest they are paying you right now on your savings?). On the TARP common equity share of Citigroup alone sold by the Treasury Department in December 2010 at a $12 billion profit. These amount to nothing more than a massive tax on selected financial institutions and their customers and shareholders. In April the Treasury Department announced that, following the recent repayment by three financial institutions of a total $7.4B in TARP funds, the TARP investment in banks has now turned a profit. With those proceeds, the government has now recovered $251B from TARP’s bank programs through repayments, dividends, interest, and other income. Treasury currently estimates that those bank programs will ultimately provide a lifetime profit of approximately $20B to taxpayers. Compare that to President Obama’s $700B Stimulus Program.
Another important goal of TARP was to encourage banks to resume lending again at levels seen before the crisis, both to each other and to consumers and businesses. That isn’t working. The Federally mandated “Stress Tests”, elevated capital adequacy requirements and asset reporting changes are now putting such credit quality pressure on lenders that loans made with confidence in 2007-8 are no longer being made. On one hand the Feds are saying make more loans but on the other, they are making loan decision making far more restrictive.
Capital markets drive innovation, create and expand industries, and can rapidly improve our lives — if we keep government out of the way, and certainly out of the position of distorting markets to favor losers over productive use of capital and especially redistributive policies.
