TARP bailout failed homeowners

Treasury Secretary Timothy Geithner, testifying in December at a congressional oversight committee hearing on TARP, called the program a success. (AP Photo/Alex Brandon)

The federal bailout program known as TARP was a huge success, right? Or was TARP a colossal failure? The truth is a matter of perspective.

Unfortunately, for families who either lost their homes or are still facing foreclosure in the aftermath of the recession, the truth hurts. Dreams of being rescued by the Troubled Asset Relief Program, which officially ended in October, never came true.

What TARP did do is inject beaucoup money into the nation’s largest financial institutions. They were deemed “too big to fail” because their collapse would surely spiral the recession into the abyss of a severe depression.

“If the alternative was indeed the abyss, TARP was clearly an unqualified success,” economist Luigi Zingales told TARP’s congressional oversight committee. Zingales said bankruptcy of the nation’s 10 largest banks would have cost them $2.4 trillion, and the impact on the U.S. economy would have been a multiple of that.

However, while Zingales agreed that government intervention was necessary, he believes alternatives better than TARP should have been considered.

Treasury officials are calling TARP a success mainly because most of the $700 billion in bailout money has been or will be paid back. That result has Treasury Secretary Timothy Geithner calling TARP “the most effective government program in recent history.”

JP Morgan, Bank of America, Wells Fargo, and Goldman Sachs have all repaid their TARP bailouts. AIG has paid back a substantial sum, as have automakers General Motors and Chrysler, which were also allowed to sip from the TARP stream.

The fact that the giant businesses repaid their debts so swiftly seems to suggest they may have survived without their bailouts.

Some critics are also saying the too-big-to-fail philosophy is a moral hazard that serves as an incentive for big banks to continue taking risks, knowing the government will bail them out.

“TARP was the largest welfare program for corporations and their investors ever created in the history of mankind,” Zingales said last month. “That some of the crumbs have been donated to autoworkers’ unions … shows that this redistribution was no accident; it was a premeditated pillage of defenseless taxpayers by powerful lobbies.”

That view doesn’t give enough weight to the desperate condition of the U.S. economy when TARP was created. Most people believe strong measures were needed to avoid a depression. But they also think TARP did a lot for Big Business while doing too little for plain folks, in particular homeowners.

Neil M. Barosky, who was TARP’s inspector general, says the program failed miserably in its attempt to purchase and modify mortgages to help homeowners avoid foreclosure. The big banks given TARP money didn’t increase lending as expected. And there were no strings attached to their bailouts to make them.

TARP’s original goal was to prevent up to four million foreclosures, but it’s now estimated that fewer than 800,000 will be avoided as a result of TARP’s mortgage modification program. With another three million foreclosures expected this year, it’s hard to call TARP an unqualified success.