At final hearing for TARP, critics call bailout program a failure

wall street banks

As TARP ends, a Treasury official defended the program as he faced critics who said it helped Wall Street, not Main Street. Image: Alan Cordova/Flickr

The Troubled Asset Relief Program was a success, according to the man in charge of the infamous government bailout program. In the final hearing on TARP before the Congressional Oversight Panel March 4, Timothy Massad, the U.S. Treasury official in charge of the program, said it prevented a collapse of the financial system and will cost taxpayers less than originally proposed. But critics on the panel said TARP helped Wall Street, not Main Street, and in terms of economic recovery the program was a failure.

Why Treasury believes TARP was a success

The Troubled Asset Relief Program ended March 4 after spending about $411 billion to bail out Wall Street banks, the U.S. auto industry and homeowners at risk of foreclosure. Timothy Massad, acting assistant secretary for the Treasury Department’s Office of Financial Stability, told the Congressional Oversight Panel for TARP that the program helped back the U.S. economy away from the brink of a depression at a time when no other government tools existed to do so. Congress authorized $700 billion for TARP at the height of the financial crisis in October 2008. About $475 billion will ultimately be spent. Initially, the cost to taxpayers was projected at $341 billion, but TARP is estimated to end up costing just $25 billion. Big Wall Street banks, such as Goldman Sachs, Citigroup and Bank of America, have paid back their bailout money. The government has recovered $277 billion in TARP money so far.

Why critics say TARP was a failure

The Congressional Oversight Panel pointed out the severely underperforming TARP-funded Home Affordable Modification Program as evidence that government bailout funds benefited Wall Street but left the rest of America in the lurch. Two years ago the administration said that HAMP would help up to 4 million homeowners avoid foreclosure. However, only about 600,000 homeowners have received loan modifications to date. The oversight panel estimated that the program would prevent less than 800,000 foreclosures, information House Republicans are using to justify killing HAMP. Massad warned against doing so. He said that killing the program would prevent tens of thousands of at risk homeowners from getting help at a time when the housing and employment markets have such a long way to go.

Moral hazard and the status quo

Critics of TARP on the oversight panel contend that TARP condoned moral hazard by assuring Wall Street banks that they are indeed “too big to fail.” Knowing they will be bailed out in future crises will encourage Wall Street banks to continue taking unnecessary risks to maximize profits. TARP critics refused to acknowledge Massad’s claim that TARP was a success because the banking system has returned to the status quo, unemployment remains unacceptably high and the U.S. economy remains weak. Joseph Stiglitz, a Nobel Laureate on the oversight panel, said that in the ultimate objective of economic recovery, TARP was a “dismal failure.”



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