A Look Back At TARP's Successes, Failures

The Troubled Asset Relief Program — most commonly known as the TARP — is officially expired. The $700 billion bank bailout was passed with bipartisan support two years ago to stabilize the nation's financial institutions and stave off a second Great Depression. While many economists agree the program was a success, voters and politicians jeer at its very mention. Herb Allison served as overseer for TARP for the past 15 months. He just stepped down from the post and agrees that it's viewed as a dirty word by the public today. NPR's Robert Siegel talks to Allison about TARP's successes and failures.

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MARY LOUISE KELLY, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Mary Louise Kelly.

ROBERT SIEGEL, host:

And I'm Robert Siegel.

The Troubled Asset Relief Program - most commonly known as the TARP -officially expired two days ago. Congress passed the massive $700 billion bailout back in October 2008 at the height of the financial panic when the stock markets were tanking and credit markets were freezing and the threat of another Great Depression loomed large.

At the time, the TARP was passed with bipartisan support. Many economists agree that the program, in large part, has been a success. And yet, as described by Herb Allison, TARP has become such a dirty word in our nation's discourse, few terms elicit such anger from voters or from politicians.

Herb Allison oversaw TARP at the Treasury Department for the last 15 months, and he joins us now from our bureau in New York. Welcome to the program.

Mr. HERB ALLISON (Former Assistant Secretary of the Treasury for Financial Stability): Thank you very much, Robert. Great to be here.

SIEGEL: This program is being vilified in this political campaign season by both Democrats and Republicans, and yet, by most accounts, it's been a financial success. How do you reconcile those two things?

Mr. ALLISON: Well, first of all, no one liked to bail out the big banks, and it's been described as a moral hazard that the taxpayers' money was put to work to protect the interests of the few in the banking industry. But, as a matter of fact, Robert, there was really no alternative at the time given the depth of the crisis. It was a true national emergency, and there was really no alternative.

And I think that, you know, it's hard to prove a negative. It's hard to really demonstrate what the economy would have been like if TARP had not been created. It kind of reminds me, though, of the movie "It's a Wonderful Life" because, as you recall, in the movie, George Bailey is shown what his hometown would have looked like had he not lived, and things were pretty tough.

SIEGEL: Do you think America would have been reduced to a national Potterville or Pottersville if there have been no TARP?

Mr. ALLISON: It might well have. In fact, there is an attempt to illustrate what the country might have looked like without TARP, and that's the study done by Alan Blinder and Mark Zandi where they indicated without TARP and some associated programs, you might have seen unemployment at 16 percent or more, and the economy literally grinding to a halt.

SIEGEL: Let's talk about the actual numbers here. The original $700 billion, that amount was never actually spent. It was capped at $475 billion, is that right?

Mr. ALLISON: Yes. And, in fact, only about $387 billion was actually invested. And I'm very pleased that at this point we've already recovered more than half of the funds that were invested. We're now down to about $180 billion. And three-fourths of the money that was invested in banks has been returned, and the government - the taxpayer in other words - will earn a profit on the money that was invested in banks.

SIEGEL: Eighty-two billion dollars went to the auto industry, to Chrysler and GM. Money also went to their financial arms and to auto suppliers. How much of that money will be recouped ultimately?

Mr. ALLISON: Well, we've already received some of that money back to taxpayers. And, as you know, GM has announced it intends to do its initial public offering as a new company in November, and that will pave the way for the government to sell its common stock ownership in GM over the next several years. And we expect that we'll recover the large portion of that funds, if not perhaps all the funds, over a period of time.

SIEGEL: Although at the moment, the GM public offering, it hasn't yet taken place, but it looks like the value of the company is a little bit less than had been hoped for.

Mr. ALLISON: That could be. We'll see what the market is like when the actual offering takes place, but we're hopeful that the public will receive most of the money back and perhaps all of it.

SIEGEL: Again, the biggest share of the money went to the banks, but there was also $70 billion that went to the insurance giant AIG. Any hope of actually seeing that money back?

Mr. ALLISON: Well, as we're reporting today in a two-year retrospective on the TARP program, if you valued our stake in the company at the current market value of the firm, we ought to get back all of the money on behalf of taxpayers and perhaps earn a profit.

SIEGEL: I've seen it claimed that perhaps the real net cost to taxpayers from all this, it's far from that original $700 billion that was never spent, it's more like $50 billion?

Mr. ALLISON: Yes. And if you look at the Treasury's overall holdings, including TARP and some other holdings with AIG, the total cost to Treasury may be as low as $30 billion.

SIEGEL: What do you make of this? I mean, you, first of all, I should point out, you were a holdover from the Bush administration. You were a former financial chair for John McCain's first presidential run. You're not a partisan Democrat by any means. Do you think part of the problem was that the big banks seemed to recover all too quickly? That is, given the size of the effort, they were, within a matter of a few months, How is it that you could say for 30 billion or almost $50 billion spared the country the risk of a huge depression with 16 percent unemployment. And if you went out there and tried to campaign for a seat in Congress on that right now right there you could knock 10 points off your showing. Why is this so unpopular?

Mr. ALLISON: Well, again, I think people were outraged that their tax money was being put to use to so-called bail out financial institutions. But I think we have to look more deeply at what was the real moral hazard that caused this problem. It certainly wasn't TARP. TARP was part of the solution.

The real moral hazard was evident during the height of the boom when banks were acting with extreme recklessness. And when things eventually collapsed -because they were almost bound to - it was the public that paid the price in terms of the value of their stockholdings falling about 50 percent. They lost 50 percent of the equity in their homes. And unemployment rose from about 4 percent to close to 10 percent.

People were outraged. They felt betrayed by the system. They couldn't understand why the government would prop up the very system that had caused the problem. But, again, there was really no choice at that time.

SIEGEL: Herb Allison who oversaw the Troubled Asset Relief Program - the TARP -at the Treasury until just a few days ago.

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