Two years ago today, the first bailout, TARP was passed in Congress and President George W. Bush signed it into law. (Even more ironic, this was also the two-year anniversary of John McCain’s campaign defeat, as he decided to suspend campaign operations to vote for this disaster.) Many of the TARP supporters claim that this was the only way to prevent a total economic collapse at a lower cost to the taxpayers. Of course, without passing TARP, many were saying that we were headed into a second Great Depression.
Fast forward to 2010, since TARP was enacted and many of the banks were bailed out, the government continued this trend by bailing out other failing industries, such as the auto manufacturers in Detroit. If anything, TARP paved the way for failing industries to receive money from the government to help them stay alive. Unfortunately with the passage of TARP, there will be more negative ramifications from this bill.
The Congressional Oversight Panel said, “The greatest consequence of the TARP may be that the government has lost some of its ability to respond to financial crises.”
The program also helped politicize the Fed, putting it in Congress’s crosshairs for its willingness to work alongside the Treasury Department to aid Wall Street. It spawned deep distrust on Capitol Hill, threatening Fed Chairman Ben Bernanke’s nomination and prompting Congress to curtail some of the Fed’s autonomy and authority. The central bank is now subject to broader oversight than it was before and is limited in its ability to single out individual institutions for financial rescues.
TARP may have saved America in 2008. This does not mean that TARP or any other bailout program will work in the future. Perhaps, it is time to remember free market economics before bailing out failing businesses and other entities in the future.