R.I.P., TARP: Government Rescue Ends Sunday

$700 billion economic rescue plan has become political football.

September 30, 2010, 11:14 AM

Sept. 30, 2010 -- R.I.P., TARP. The government's $700 billion taxpayer bailout of the financial system will come to an end Sunday, bringing to a close one of the most controversial programs in economic history.

But the political ramifications of the Wall Street bailout live on -- and seem sure to haunt lawmakers come November.

Supporters say the Troubled Asset Relief Program rescued the country from another Great Depression. Critics counter that it simply handed money to the same Wall Street banks that plunged the country into recession in the first place and, moreover, it failed to help Main Street Americans.

The political back-and-forth has been fierce. Republicans, led by President Bush, first pushed the program through Congress in the fall of 2008. But with the 2010 mid-term elections fast approaching, Republicans are trying to capitalize on the program's unpopularity by tying Democrats -- including President Obama -- to the bailout.

In fact, "bailout" has become the dirtiest word in politics, with Republicans and Tea Party activists especially using it to rail against government spending.

At an Aug. 10 press conference, House Republicans used the word "bailout" no fewer than seven times in criticizing a $26 billion state fiscal aid package that was making its way through Congress.

"The bailouts have to stop. No more bailouts," said Rep. Marsha Blackburn, R-Tenn.

Just last week, Rep. Kevin McCarthy, R-Calif., said in the GOP's weekly radio address that Democrats in the White House and Congress had pushed a bailout policy.

"Our government has failed us," McCarthy said on Sept. 25. "From the billion-dollar bailouts, to the 'stimulus' package that failed to stimulate, to the government takeover of health care, you cried "Stop!" -- but the Democratic Majority in Washington has refused to listen."

The House Republicans' "Pledge to America" vowed permanently to end the program.

Democrats, meanwhile, have been put on the defensive, standing up for a program that was the brainchild of a Republican administration. While the President has repeatedly noted that he understands why the program is so deeply unpopular, he also continues to defend its effectiveness.

Obama said in Rolling Stone magazine last week that the program will ultimately cost taxpayers far less than had initially been feared.

"The truth of the matter is that TARP will end up costing probably less than $100 billion, when all is said and done," he said. "Which I promise you, two years ago, you could have asked any economist and any financial expert out there, and they would have said, 'We'll take that deal.'"

The End of TARP: Bailout Program Ends Sunday

The president and his administration have also promised that the days of taxpayer-funded bailouts are over, thanks to the sweeping Wall Street reform bill that emerged from Congress in July.

"There will be no more tax-funded bailouts. Period," Obama said at the bill's July 21 signing. "If a large financial institution should ever fail, this reform gives us the ability to wind it down without endangering the broader economy. And there will be new rules to make clear that no firm is somehow protected because it is "too big to fail," so we don't have another AIG. That's what this reform will mean."

The non-partisan Congressional Budget Office has estimated that the costs of the program will be 90 percent lower than the original $700 billion of taxpayer funds. On top of that, the Treasury Department has steadfastly said that taxpayers will earn a profit on the portion of the program that invested money in banks. To date, over half the money invested by Treasury has been repaid to the government.

Ultimately, the program arrives at its expiration date with the jury still out on its success.

The Congressional Oversight Panel, led by Elizabeth Warren, who has since been tapped to serve as an adviser to Obama, released a report in September that said the program had only enjoyed "limited" success at its broader goal of helping the economy at large and that, in turn, has fueled widespread public anger.

"Popular anger remains high about taxpayer support of America's largest banks, and that anger has only intensified in light of the continuing economic turmoil," the Panel said in the report. "The TARP's unpopularity may mean that, unless the program's effectiveness can be convincingly demonstrated, the government will not authorize similar policy responses in the future. Thus, the greatest consequence of the TARP may be that the government has lost some of its ability to respond to financial crises."

As of Sunday, the Treasury Department will no longer be able to make investments through the program, after two years when it had authority to rescue troubled firms and companies, from banks to automakers.

But even as it winds down, it may still be some time before a final determination of the controversial program can be made. For now, it will continue to be hotly debated, fading from view but not from memory.

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