Obituary: TARP (Born October 3, 2008; Died October 3, 2010)
Troubled Asset Relief Program – 2 years old, of Washington, D.C., passed away quietly on Sunday, surrounded by friends and supporters (excluding elected officials), as the Treasury’s authority to make new investments under the influential, yet politically reviled $700 billion program officially expired.
Offering its pre-written eulogy on Friday, the Treasury Department sought to highlight TARP’s legacy on the U.S. financial sector during its short, active and tumultuous life.
“Looking back, it’s clear that TARP has played a critical role in stabilizing the financial system during a period of historic crisis and has helped put our country on the path to economic recovery – at a fraction of that initiative’s original projected cost,” stated a Treasury press release on October 1, buoyed by recent Congressional Budget Office (CBO) figures that predict TARP losses to the taxpayer of $66 billion, down from the most recent Treasury estimates of $105 billion.
Born in the thick of the 2008 financial crisis, TARP was created under the Emergency Economic Stabilization Act of 2008 (EESA), an expedited congressional response to heightening fears that an economic collapse was imminent. Garnering significant bipartisan support in both congressional chambers, the EESA passed the Senate on October 1 by a vote of 74-25 (with 34 Republicans supporting) and two days later in the House by a vote of 263-171 (with 91 Republicans supporting) and was then quickly signed into law by President Bush.
Although TARP was originally created to allow government purchases of non-liquid asset-backed securities and other debt instruments from the books of troubled banks and financial institutions, then-Treasury Secretary Henry Paulson chose instead to inject up to $250 billion of capital into 707 financial institutions through the Capital Purchase Program (CPP). In addition, TARP funds were disbursed to aid struggling homeowners (Making Homes Affordable Program), stabilize the consumer and business credit markets (Term Asset-Backed Securities Loan Facilities Program, or TALF), and improve the health of financial institutions holding real estate-related assets (Public-Private Investment Program, or PPIP). Overall, Treasury disbursed just under $400 billion of the $700 billion approved by Congress.
While on political life support on Capitol Hill in late 2009, Treasury Secretary Timothy Geithner extended TARP’s existence through October 3, 2010, but also chose to narrow the program’s focus to three specific areas in 2010: home foreclosure mitigation; small-business lending; and TALF in order to facilitate lending through securitization markets.
Despite Treasury’s newly-expired authority under TARP, the program’s influence will continue beyond the grave, as disbursements can still be made for certain programs where existing contracts and previous commitments remain, including the following: the Making Home Affordable Program, Hardest Hit Fund, Consumer and Business Lending Initiative, PPIP, and the Automotive Industry Financing Program. Treasury disbursement authority has expired for all other TARP programs, including the Capital Purchase Program, Capital Assistance Program, Asset Guarantee Program, and the Targeted Investment Program.
As the topic of government-sponsored bailouts has become a hot-button political issue leading up to the mid-term elections on November 2, provoking widespread voter resentment, Secretary Geithner urged lawmakers to embrace their early support of TARP.
“A lot of people who voted for TARP decided later that they had to distance themselves from that vote by disparaging the program,’’ said Secretary Geithner during a recent speech. “But I think they should be proud of the votes they cast. They were on right side of history.’’
Due to expectedly low congressional turnout, there will be no memorial visiting hours for TARP.
