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Michael Hiltzik: TARP and its discontents

December 14, 2009 |  3:00 am

I don't fully understand why the Troubled Asset Relief Program, or TARP, has become such a symbol of bad government anti-recessionary policy. No one who kept a close eye on the state of the financial system in September and October of 2008 can ever forget the feeling in the pit of their stomach that the entire system was on the brink of collapse.

TARP was an emergency program to reverse that hideous slide, and it surely worked. Yet, as my column for Monday lays out, it was far from perfect. More to the point, the end of the program isn't any better thought out than its creation was.

During the Depression, the British economist John Maynard Keynes recognized the distinction between recovery and reform programs. As I observed a couple of weeks ago, he advised Franklin Roosevelt to focus on the former in 1933 and 1934, but only to defer, and not ignore, the need for reform. We still need reform of the banking system; the danger of pretending that the crisis is past and nothing like TARP is necessary any longer is that the initiative for reform will pass, too.

The column starts below.

The headlong rush by big banks to pay back their TARP bailout loans -- Citigroup is the latest candidate looking for the exit -- has prompted a lot of stock-taking about this widely-detested $700-billion program.

Among the questions being aired are: Has TARP worked? Have we the taxpayers made a profit on the deal? Did we force loan terms upon those banks on the brink of extinction last year that were too steep, or not steep enough?

One question that perhaps isn’t being raised enough is this one: Should we let the banks repay the money?

To put it another way, by allowing the banks to exit the emergency program that saved their butts in the fall of 2008, is the government giving up what could have been an effective tool of leverage over this misbehaving industry?

Read the whole column.

-- Michael Hiltzik