Politics: Tarp: A Success None Dare Mention

The Obama administration this week will mark the second anniversary of the collapse of Lehman Brothers and the ensuing Wall Street meltdown with an ironic bit of bipartisanship: letters of thanks to some of the congressional Republicans who helped fashion the government's response in fall 2008.

No one in the Treasury Department is expecting any appreciation from House Minority Leader John Boehner, Senate Minority Leader Mitch McConnell or former House Minority Whip Roy Blunt for the gesture. In a reversal of the old adage quoted by President John F. Kennedy, that victory has a thousand fathers, there's hardly a Republican who wants to be associated with perhaps the most successful and least popular American economic policy in the past decade: TARP, or as it is generally known, the bank bailout.

The Troubled Asset Relief Program is widely viewed as the original sin of the Obama administration — though it was put together under President George W. Bush and succeeded far beyond expectations. It's widely seen as the tipping point for disgust with elites and insiders of all kinds — though it could also be seen as those insiders' finest moment, a successful attempt to at least partially fix their own mistakes.

“The TARP is probably the most effective large-scale government program that the public has vehemently decided was a bad idea, and, therefore, has only the most tepid political defenders,” said the Brookings Institution's Douglas Elliott. “Unfortunately, the right thing to do for the public just sounds so wrong to Main Street in this case.”

Polls suggest the public has only the haziest view of what TARP was. It's often conflated — not least by politicians who voted for it and now seek to muddy the waters — with the stimulus, a piece of policy whose supporters and foes have fallen into a much more familiar debate about the role of government and public spending.

Even Nevada GOP Senate nominee Sharron Angle at one point referred to TARP as “the stimulus.” And few Americans seem to know that the banks at the center of TARP have paid the money back — with interest.

Pollster Ann Selzer asked voters this summer, “Do you think the Troubled Asset Relief Program, known as TARP, was necessary to prevent the financial industry from failing and drastically hurting the U.S. economy, or was it an unneeded bailout?”

Fifty-eight percent of Americans said TARP was unneeded. Only 28 percent called it “necessary.”

The consensus of economists and policymakers at the time of the original TARP was that the U.S. government couldn't afford to experiment with an economic collapse. That view in mainstream economic circles has, if anything, only hardened with the program's success in recouping the federal spending.

A study this summer by former Fed Vice Chairman Alan Blinder and Moody's chief economist Mark Zandi was representative of that consensus. They projected that without federal action — TARP and the stimulus — America's gross domestic product would have fallen more than 7 percent in 2009 and almost 4 percent in 2010, compared with the actual combined decline of about 4 percent.

“It would not be surprising if the underemployment rate approached one-fourth of the labor force,” they wrote of their scenario. “With outright deflation in prices and wages in 2009-11, this dark scenario constitutes a 1930s-like depression.

For more, see Tarp: A Success None Dare Mention by Ben Smith, September 14, 2010, at Politico.