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Measures of TARP

posted by Anna Gelpern

The curtain drew on TARP to a flood of assessments, from Treasury's up to TARP COP's down, with the commentariat all along the spectrum in between, converging around about the "necessary-evil-begets-moral-hazard" meme.  But this New York Times graphic and the surrounding talk of taxpayer repayment left me wondering.  To be sure, it is always better to make money than to lose money.  And I suppose if a government program were an abject policy failure but made a killing for the Treasury, it would not feel quite as bad as a failure that cost an arm and a leg.  The Clinton Administration's package for Mexico in 1995 is often described as a success in key part because it was repaid in a year, and made a profit for the Treasury -- so much so that Paul O'Neil, George W. Bush's first Treasury Secretary, famously endorsed his Democratic predecessors' controversial bailout.  All this makes sense if the fiscal rescue works like the central bank's lender of last resort function, meant to overcome illiquidity with safe short-term loans at penalty rates.  As Steve Davidoff points out, TARP's overriding goal was rapid stabilization, in which case the big difference between TARP's containment strategy and the preceding Fed facilities is some mix of extreme fear and political exhaustion.  I suspect that this view of  what makes TARP successful lends itself to certain methods-- big loans to banks over little subsidies to households, which would take a long time to wind their way back to the Treasury.  Should "bailouts" make more of an effort to distribute and stimulate, even if it means more risk of near-term loss?  I wonder.  Would any political body ever do it?  I doubt it.  Bye, TARP.

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