A Year Later, Is TARP Still A Relief?

Last October, then President Bush signed into law the Troubled Asset Relief Program, commonly known as TARP. The program started as a $700 billion federal effort to buy bad loans and debt from banks. A year later, it has evolved into a dozen different programs which all add up to a price tag of about $3 trillion. Host Liane Hansen speaks to TARP Inspector General Neil Barofsky, who testified to the Senate Thursday about the state of the economy and financial industry a year after the bailout.

LIANE HANSEN, host:

Last October, then-President Bush signed into law the Troubled Asset Relief Program, commonly known as TARP. The program started as a $700 billion federal effort to buy bad loans and debt from banks. A year later, it has evolved into a dozen different programs, which all add up to a price tag of about $3 trillion.

TARP Inspector General Neil Barofsky is in charge of overseeing how these funds are being used. He testified this past week before a Senate committee on the state of the economy a year after the bailout, and he's in our New York bureau. Mr. Barofsky, welcome to the program.

Mr. NEIL BAROFSKY (Inspector General, TARP): Thank you. It's great to be here.

HANSEN: I know you've had a lot of tough questions to answer, but here's one: on a macro level, is TARP working?

Mr. BAROFSKY: You know, it really depends on what your definition of working is. Lately, a lot of the founders of the TARP, looking back, say that one of their goals was to prevent a collapse of the economic system. And I think if that's the question, I think TARP definitely contributed to saving our economic system.

But if you look at it by some of the things that were suggested at the time the TARP was announced, like increasing lending or taxpayer return on the investment, I think there it's a little bit less clear. I mean, lending hasn't increased since then. So, a lot of it depends on what your definition of working is.

HANSEN: Do you think that $700 billion was enough up front?

Mr. BAROFSKY: Well, I think if you look back and see what's happened, is Treasury has not tapped into the full 700 billion. They've leveraged some of the funds with other agencies, like the FDIC or the Federal Reserve. But the fact that they haven't hit the cap yet certainly suggests that for the programs that they've chosen, it has been enough.

HANSEN: Thursday you told the Senate Committee on Banking, Housing and Urban Affairs that the taxpayers likely will never recoup the full amount of TARP payments. Is this something that, I mean, could or should have been anticipated a year ago?

Mr. BAROFSKY: I think that when the TARP was originally announced, it was far different from what it is today. And I think that it was overly optimistic at the time when then-Secretary Paulson announced that taxpayers would receive a full return on their investment. That was optimistic thinking. But some of the programs that have developed since then are simply not designed to return an investment.

For example, the Mortgage Modification Program, that's $50 billion that's being used to help struggling homeowners. But there's no intention whatsoever for there to be a payback of that money or any direct return on that investment. So I think that knowing that $50 billion is certainly not going to come back, it would be unrealistic to think that overall this program is going to have any type of dollar for dollar return.

HANSEN: You advocate for full transparency regarding how the TARP funds are being spent and being used. Do you think some of the bank abuses in the past year could have been prevented with a policy of full disclosure?

Mr. BAROFSKY: The great thing about transparency is that it serves many masters. And I think that is one of things that we could have helped prevent, if to the extent that the banks are using TARP funds in ways that we think from a policy perspective are less than ideal. Of course, if they knew they had to account their uses of funds, that would have to influence behavior.

Of course, we're never going to be able to know the answer to that question because of Treasury's steadfast refusal to adopt our recommendation to require that level of transparency.

HANSEN: But what do you think will happen in the future if a policy of full disclosure isn't adopted?

Mr. BAROFSKY: I think, you know, as long as we're pushing money at these financial institutions with little or no conditions on how they're using the funds, we can't realistically expect to have optimal use of those funds.

HANSEN: There are both good and bad predictions about the future and how the U.S. economy is going to look in the coming months. What role do you see TARP playing in, say, six months from now?

Mr. BAROFSKY: Boy, that's a tough question because the one thing that is most predictable about the TARP and the way this has evolved is that making predictions is a really, really bad idea. Given the uncertainty in the economy, we really don't know what's going to happen.

HANSEN: TARP Inspector General Neil Barofsky, he joined us from our New York bureau. Thank you very much.

Mr. BAROFSKY: Thank you.

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HANSEN: You're listening to NPR News.

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