TARP Effectiveness “Limited” Says Congressional Oversight Committee

Those who were failed by TARP may soon turn to a different type of tarp.

The Congressional Oversight Panel (COP) released its September Oversight Report on the Troubled Asset Relief Program (TARP) yesterday.

TARP is due to expire on October 3rd, 2010.  The program was originally a $700 billion stimulus program that was reduced to $475 billion due to a selective austerity hysteria amongst some members of Congress, a ponderous condition which causes some politicians to oppose additional stimulus under the grounds that it will add to the deficit while simultaneously supporting tax cut extensions that would also add to the deficit.  The stated goals of TARP were to “protect home values, college funds, retirement accounts, and life savings; preserves homeownership and promotes jobs and economic growth.”

The report suggests that TARP’s effectiveness in achieving its goals is questionable:

“Since the TARP was authorized in October 2008, 7.1 million homeowners have received foreclosure notices.  Since their pre-crisis peaks, home values have dropped 28 percent, and stock indices – which indicate the health of many Americans’ most significant investments for college and retirement- have fallen 30 percent.  In short, although the TARP provided critical government support to the financial system when the financial system was in a severe crisis, its effectiveness at pursuing it broader statutory goals has been far more limited”.

Much of the trouble in establishing the effectiveness of TARP is due to the difficulty in measuring it.  The program is still ongoing, and it could take several years to determine what effect TARP actually had on the economy.  The COP seems to feel that the program did bring some degree of stability to the economy:

“Although the government’s response to the crisis was at first haphazard and uncertain, it eventually proved decisive enough to stop the panic and restore market confidence.  Despite significant improvement in the financial markets, however, the broader economy is only beginning to recover from a deep recession, and the TARP’s impact on the underlying weaknesses in the financial system that led to last fall’s crisis is less clear”.

The effectiveness of TARP aside, the COP seems to feel that the implementation strategy, as well as the way the program was presented to and received by the American public are among the key flaws of the program:

“Over the last 10 months, Treasury’s policy choices have been increasingly constrained by public anger about the TARP.  The program is now widely perceived as bailing out Wall Street banks and domestic auto manufacturers while doing little for the 14.9 million workers who are unemployed, the 11 million homeowners who are underwater on their mortgages, or the countless other families struggling to make ends meet.  Treasury acknowledges that, as a result of this perception, the TARP and its programs are now burdened by a public “stigma”.

COP says that the public backlash against TARP, deserved or not, will hurt the government’s ability to take such actions in the future, whether or not they are valid and warranted:

“Thus the greatest consequence of the TARP may be that the government has lost some of its ability to respond to financial crises.”

Given this report, how do you feel about TARP?  Let me know in the comments section below.