Obama Is Wasting Billions of TARP Profits

         The Troubled Assets Relief Program (TARP) is predicted to cost $25 billion, not the $700 billion initially appropriated and loaned, as borrowers have been repaying the loans with interest or the government has been selling corporate stocks it purchased through TARP for a profit.

            The controversial TARP was proposed by the Bush Administration and approved by the Democratic majority Congress in response to the financial crisis of 2008.  The Administration, which feared the seizing up of the entire financial system that could lead to a depression, proposed the program of government loans in order to protect bank depositors from the mismanagement of financial institutions with whom they had deposited money (i.e. to whom they had loaned).  Those institutions had made bad loans when interest rates were low – often to borrowers who were not creditworthy who were then unable to make their payments once interest rates rose.  Depositors, therefore, would have been innocent victims of these institutions had they not been able to borrow from the government and collapsed. 

In other words, TARP was intended as a bailout for depositors, not, as liberals, libertarians and populists on the right have falsely portrayed, as having been done for the benefit of big banks and other “Wall Street” financial institutions.  The precedent of federal protection for depositors had already been set by the federal government during the Great Depression when the Roosevelt Administration established deposit insurance, instead of allowing the private sector to offer it, as it does every other kind of insurance.  Nonetheless, these big financial institutions did benefit by receiving taxpayer money.  Even if most of the money will be repaid, the cost to the taxpayers is staggering. 

The broader concern for the economy alone was also cited as a justification for the bailouts.  It could be argued that TARP prevented the recession from becoming a depression, which would have harmed the public economically even more and thereby decreased government revenue even further, but whether the program worked or not does not justify the expansion of federal power.  However, as I have noted frequently, the economy is not an appropriate concern for government, especially not the federal government of the United States, which, unlike Socialist regimes, has relatively little direct economic authority.  Indeed, bailouts became a habit as an economic policy, as the Obama Administration extended the practice under TARP to automobile companies – strictly on economic grounds.  Bailouts like TARP should have been an exception, necessarily only to clean up the mess from government intervention in the economy, not the rule as a new form of government economic intervention.

My point about the report that TARP will have cost the taxpayers far less than originally feared, albeit an enormous amount, is that the original $700 billion figure for these loans is counted in government accounting as part of the Bush era deficits and as a corresponding increase in the federal debt, as if it were strictly an expenditure like every other outlay from the Treasury, while the repayment of these loans is counted as revenue for the Obama Administration, which partially offsets its massive spending spree.  Thus, the report confirms my prediction (See my post from September of 2009, Analysis of Obama’s Economic and Fiscal Policies, http://williamcinfici.blogspot.com/2009/09/analysis-of-obamas-economic-and-fiscal.html) that TARP would make the Bush Administration’s spending appear higher than it actually was while making the Obama Administration’s spending seem less high than it is. 

In other words, Barack Obama is the president who is essentially spending most of the bailout money instead of using the revenue from the interest form or repayment of the loans or sale of corporate stock to reduce the federal debt.  Furthermore, the report is more evidence that disproves his contradictory argument that Bush’s deficit spending was responsible for the recession while Obama’s own significantly increased deficit spending is the solution, a topic upon which I shall treat in an upcoming post.