Tuesday, October 19, 2010

Displaced anger

The Troubled Asset Relief Program (TARP) and, to a lesser extent, the stimulus have become symbolic conduits of political anger. The reason is simple. Both were passed amid much fanfare and controversy, and yet the unemployment rate is still almost 10%. Therefore, critics say, the programs are flops.

The bailouts were rational, clear-headed responses to the worst financial meltdown since the Great Depression. The recession is still hurting many, but the hard facts are that both measures have made the economy better, or to be more precise, not nearly as bad as it otherwise would have been.

What would have happened if the bailouts had not been instigated? The early 1930s provide a case study in what happens when a financial crisis is met with inaction and sanctimony about a return to basic values. Suffice it to say, things did not end well back then – and the Great Depression went on for years. This time around, both the Bush and Obama administrations, Congress, and the Federal Reserve were determined not to let history repeat itself.

TARP, enacted two years ago with bipartisan support, injected capital into financial institutions when credit was frozen. And contrary to what is believed, the government did not simply hand cash to the banks with no strings attached; it purchased shares of preferred stock. Now that the banking system has stabilized, the stock is being sold, at a profit to taxpayers. Similarly, TARP money was used to prop up GM and Chrysler when the collapse of those domestic automakers would have added hundreds of thousands more workers to the unemployment rolls.

Of the $388 billion in TARP money that was spent, more than half has already been recovered, according to the latest Treasury Department report. What's more, with GM looking healthier and insurance giant AIG showing signs of life, it is possible that TARP could turn a profit in the end. That would make it one of the best uses of federal tax dollars in memory.

Similarly, the stimulus has had a positive effect, though measurable only against a less desirable situation that might have been. It strengthened the social safety net for those cast into desperate straits and bolstered struggling states and localities. The non-partisan Congressional Budget Office (CBO) estimates that 1.4 million to 3.3 million more people would be unemployed today without it. The challenge now is to ensure that spending meant to be temporary and targeted does not become permanent.

Given the unpopularity of TARP and the stimulus, it is not surprising that candidates this fall are trying to disassociate themselves with these programs. In fact, voters in GOP primaries ousted several Republicans – known as the TARP martyrs – who supported the bailout. As the Great Depression proved, the true act of irresponsibility in the midst of economic crisis is to freeze up and do nothing, then take cheap shots at those who saved the day. It’s too bad that some Republicans lost their jobs due to TARP.

Voters have every reason to be angry about the economic mess, but their rage is displaced. It should be directed at the Wall Street financiers who threw caution to the wind and the politicians of both parties who enabled them, not at lawmakers who acted responsibly to save the system at a moment of maximum peril.