Six months after Congress passed the Emergency Economic Stabilization Act of 2008, allowing for the $700 billion Troubled Asset Relief Program (TARP) allocation, a report issued by the Congressional Oversight Panel formed to monitor the federal bailout, labels the Treasury’s actions thus far under the watch of Secretary Timothy Geithner as “reasonable” if his office’s gauge of the actual depth of the economic downtown is accurate.
To date, the Treasury has spent or committed $590.4 billion of the available TARP funds, the panel estimates, while the Federal Reserve Board has expanded its balance sheet by more than $1.5 trillion in loans and purchases of securities. But “six months into the existence of TARP, evidence of success or failure is mixed,” the report says, adding that “evaluating the wisdom and success” of federal market intervention “requires a broader understanding of the basic choices available to policymakers during this crisis”–specifically pointing to liquidation, receivership, or subsidization.
The report safely concludes that success of the Treasury’s approach depends on which philosophy was correct in the long-term. Was the financial crisis the product of “temporary liquidity constraints, resulting from nonfunctioning markets for troubled assets” as Geithner and company have suggested? Or, does that approach fail to acknowledge the depth of the downturn “and the degree to which the low valuation of troubled assets accurately reflects their worth?” If the latter, the reports says, the Treasury will have a new path to forge.
The report certainly indicates progress, to say the least. Particularly when, just last December, Elizabeth Warren, the consumer bankruptcy expert who chairs the oversight panel, worried that TARP funds were being spent on an ad hoc basis, employing shortsighted tactical solutions in lieu of a coherent strategy.
Meanwhile, the Congressional Oversight Panel has its hands full. An April 13, 2009, article in The Wall Street Journal reported that the panel is assembling a new study that examines potentially inappropriate lending by banks that received TARP monies, such as annual interest rates that surpass 100 percent for some loans, and other rising fees and rates.