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The Untold Story of TARP

No one wanted to bail out Wall Street. No one wanted to use taxpayer dollars to rescue an industry that helped cause the worst economic crisis in a generation. It was unfair. It was appalling. But it was necessary. We had no other choice.
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TARP has become a dirty word in our nation's political discourse. Few terms elicit such anger from voters and politicians.

In many ways, that's understandable. No one wanted to bail out Wall Street. No one wanted to use taxpayer dollars to rescue an industry that helped cause the worst economic crisis in a generation.

It was unfair. It was appalling. But it was necessary. We had no other choice.

Two years ago, we stood at the brink of an economic catastrophe. Ordinary American families were questioning whether their money was safe in banks. A growing financial panic threatened to sink our nation into an economic downturn that rivaled the Great Depression.

A bi-partisan majority in Congress responded by enacting the Troubled Asset Relief Program. The debate over this issue was heated. On October 3, 2008, when TARP became law, one member of Congress even went so far as to say, "I don't think it is too much of a stretch to say this may be the day America died."

Two years later, with TARP officially set to expire today, it's an appropriate time to look back and evaluate that program's effectiveness. And now that the fog of an intense financial panic has lifted, it's clear that the critics and cynics were wrong. TARP has proven remarkably successful at stabilizing the economy and laying the foundation for future growth.

Today, our economy is healing. Because of the enormity of the challenges we faced, unemployment is still unacceptably high and growth has not yet reached an acceptable pace. But we're on the path to recovery. Businesses have added jobs for eight straight months. Private investment and confidence in banks have returned. The cost of borrowing for businesses, municipalities and individuals has declined dramatically.

The TARP investments that the Bush and Obama administrations made in GM and Chrysler, as well as the hard decisions that those companies made to adapt and compete, turned those automakers around and saved at least one million jobs. Since GM and Chrysler emerged from bankruptcy, the auto industry has added 76,300 jobs - the strongest growth in 10 years - and for the first time since 2004, all of the big three American auto companies are operating profitably.

In fact, independent experts have estimated that overall, without the federal government's response to the financial crisis, including TARP, there would be nearly 8.5 million fewer jobs today and the unemployment rate would exceed 15 percent.

The question, then, is why does TARP remain unpopular, despite its success? I believe, in great part, it's because a number of myths about the program stubbornly persist.

Many people think that TARP cost $700 billion. But Treasury is now confident that the lifetime cost to taxpayers will be less than $50 billion. Repayments have continued to exceed expectations. Three-fourths of the TARP funds provided to banks have already been returned. And the exit strategy AIG announced last week puts taxpayers in a considerably stronger position to recoup our investment in that company.

Many people think that TARP funds only went to Wall Street. But more than 450 small and community banks participated in TARP, which helped them deliver credit to local small businesses and families. Additionally, more than 3.3 million struggling homeowners have had an opportunity to stay in their homes or find more affordable alternatives because of foreclosure prevention programs either financed by TARP or created as a result of TARP in the private sector.

Many people think that TARP created a precedent for future bailouts. But President Obama and Treasury Secretary Geithner worked tirelessly with Congress to enact the Dodd-Frank Act, which will ensure that the American people are never again put on the hook for the reckless acts of a few financial firms. That law gives the government new tools to shut down and dismember failing institutions rather than bail them out with taxpayer dollars.

Unfortunately, the untold story of TARP's success has been lost in the heated rhetoric of today's politics.

TARP was enacted in an all-too-rare moment of bipartisan cooperation in Washington - with support from both sides of the aisle, including from Republican leaders Representative John Boehner and Senator Mitch McConnell. The Bush Administration began the implementation of TARP and the Obama Administration is finishing the job.

Now, many of those who supported TARP have decided that, politically, they need to be against it. But removed from the pressures of a November election, these individuals should be proud of the hard choices they made to help save our economy from a devastating collapse.

And perhaps someday they'll say what is now, for them, the unspeakable: TARP was a success.

Herb Allison served as Assistant Secretary for Financial Stability from 2009 until September 30, 2010 at the US Department of the Treasury, where he oversaw the TARP program.