Under the Troubled Asset Relief Program, or TARP, Special Treasury Department Inspector General, or watchdog, Neil Barofsky, submits a quarterly review to Congress.
With TARP, the federal government bailed out financial institutions with hundreds of billions. Both the Bush and Obama administrations insisted that banks would stop lending had there not been this aid. And that our entire financial system would have collapsed.
The watchdog was asked last fall whether TARP was "working," He replied: "It really depends on your perspective. We were then advised by the Treasury that TARP’s purpose was to increase lending. Today we are told that TARP was to prevent systemic collapse. " Lending has not increased, Barofsky said, but "it appears that we've avoided a total systemic collapse."
The watchdog's current report to Congress says that TARP can only be called a success if the program "is both managed well and its positive effects are enduring."
But the management of the program by the Obama administration is being criticized. And it is difficult to see how lasting and positive TARP effects will be.
One argument for the bailout was that the banks were too big to fail. But those banks have since gotten much bigger by government sponsorship. And with additional government guarantees, it has become more explicit that these banks have become too big to fail.
"Even if TARP saved our financial system from driving off a cliff back in 2008," says Barofsky, "absent meaningful reform, we are still driving on the same winding road.”
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