Sunday, November 14, 2010

Bush's TARP Legacy

As pretty much everyone has learned by now, Former President George W. Bush has a new book out -- Decision Points -- and a highly choreographed publicity blitz to coincide with its launch. The book is drawing a wide range of reviews, as should be expected, but I've been particularly interested in the content of several of his interviews that aired over the past week.

In conversations with Matt Lauer (NBC), Rush Limbaugh (Radio) and Sean Hannity (Fox News), President Bush aggressively defended his decision in 2008 to create the controversial Troubled Asset Relief Program, which has become known as TARP.  The concept behind TARP was relatively simple: to invest federal dollars from the U.S. Treasury into the major banks and lending institutions as a way of shoring up confidence in the financial system.

The more official version of TARP, courtesy of the Federal Reserve, was to introduce "a series of initiatives to strengthen market stability, improve the strength of financial institutions and enhance market liquidity" with a program designed to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy.

The Bush Administration promoted TARP as an emergency measure that was needed to stem the frightening death spiral of the U.S. economy in the fall of 2008. They were able to get most Congressional Democrats on board and enough Republicans (ultimately) in order to get the legislation passed.

At the time, TARP was opposed by many on the Left as a government bailout of Wall Street on the backs of the middle class taxpayer.  Meanwhile, it was opposed by many on the Right as yet another example of overreaching government intervention into the free markets.  It required the courage of a Republican President, the creativity of a Treasury Secretary, and the votes of just enough legislators from each party to make it a reality.

But here's the thing: it worked.

In fact, just a few days ago, noted banking analyst Dick Bove called TARP "the most successful government financial program ever." Bove opined that, with the benefit of hindsight, we can clearly conclude that TARP saved the banking industry -- as well as the broader U.S. economy -- in those precarious days of late-2008, while making deals with the banks that ultimately generated a hefty return for U.S. taxpayers.

How is it possible that this one program could be regarded as such an historic success? First, TARP restored public confidence in the banking system at a crucial time when we were seeing indicators of old-fashioned bank runs (e.g., the Bear Stearns panic, the Lehman Brothers implosion) by essentially taking equity positions in our major banks and lending institutions. Second, all of the objective data points to the conclusion that TARP staunched economic bleeding -- and likely had a key role in reversing the economic decline that very well may have had the country on track for an economic depression -- by creating just a smidgen of liquidity in the financial markets at a time when they were in free-fall panic. And third, the terms of the TARP investments were so intelligently structured that more than half of the banks receiving TARP funds have repaid the money in full, netting the U.S. Treasury a profit of $28 billion so far; on top of that, the FDIC raised approximately $12 billion for its guarantee program, ensuring their stability in protecting deposits, and the Federal Reserve has earned somewhere in the ballpark of $20 billion on its asset purchases.

It's also important to take note of the politics that surrounded the passage and implementation of TARP.  It was designed and proposed by a Republican presidential administration, was championed and passed by a Democratic-controlled Congress, then was expanded upon and further implemented by a Democratic presidential administration that took office in January 2009.  In other words, this historically successful program was one of the few truly "bipartisan" sweeping policy initiatives to come out of our nation's capital in the past decade.

The point is that TARP may be maligned by folks on both ends of the philosophical spectrum for departing from their individual orthodoxies -- liberals who oppose taxpayer bailouts of Wall Street, conservatives who oppose government intervention into the free markets -- but it can not be accurately maligned for failing to achieve its goals.  TARP worked, folks, and those of us who didn't like the idea at the time are going to have a hard time arguing with the facts.

All of this brings me back to President Bush and those media interviews about his new book. Aside from his appearances on NBC and The Oprah Winfrey Show, Mr. Bush's publicity appearances have been skewed toward audiences that are pre-disposed to still support him and more likely to go out and buy that book -- the audiences delivered by Limbaugh, Hannity, O'Reilly, etc.  However, these folks also seem to be the most aggravated by Mr. Bush's departure from free market economics/Tea Party politics, so TARP is one policy initiative that brings out the criticism from the Right, even two years after his departure from office.

"If you are the president, you don't have time to gamble and I didn't like using taxpayer money to bail out the people who got us in trouble," President Bush told Limbaugh. "I didn't like it at all.  But when you are president, you are faced with stark choices and I couldn't have lived with myself had the country gone into a deep depression."

Mr. Bush was even more revealing about his situational conservatism when he spoke to Lauer.  Explaining that his Treasury Secretary walked into his office and warned him that he would need to take major policy action or he would preside over a depression, Bush said that "the decision point here was do you adhere to your philosophy and say, 'Let 'em fail,' or do you take taxpayer money and inject it into the system in hopes that you prevent a depression. I chose the latter."

He went on to explain that he knew the TARP proposal would cost him dearly with conservatives who would question his philosophical sellout, but that he wasn't concerned about such matters of angst or personal contradiction -- his only concern was protecting the U.S. economy from a potential collapse that would be devastating to the hard-working families of the country.

As an American who did not vote for President Bush in either 2000 or 2004 -- and still regards his presidency as a deeply disappointing time for our country -- I have no bias that forces me to look for the good in Mr. Bush's tenure in office.  But with the limited hindsight that two years provides, it is clear to me that TARP was his highest policy achievement.

Moreover, the courage it required to set aside his personal ideology and antagonize his political base in order to do what he knew was best for the people of the United States, is surely his greatest legacy.

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