Sen. Gregg Reflects on TARP Anniversary
TARP
New Hampshire Union Leader
Joe Markman
Boston University Washington News Service
10/01/09
WASHINGTON — Pushing a banking industry bailout through the Senate last fall may have seemed like an ideological switch for fiscal conservative Judd Gregg, but calamity, practicality and the likelihood of taxpayer profits made it palatable to the New Hampshire Republican senator.
The financial panic that pushed Congress and the Bush administration to create the Troubled Asset Relief Program slammed into high gear when Lehman Brothers failed on Sept. 15, 2008.
For Gregg, picked by the Republican leadership to help pilot the Senate’s effort to stave off further collapse, the next two weeks were a blur of negotiations.
“We were dealing with a situation the likes of which the world had never seen before in the financial markets,” Gregg said in an interview on Thursday. “There was absolutely no partisanship at that [negotiating] table.”
Despite a few bumps in the road, and one gigantic dip in the stock market when the House initially voted down the TARP bill, Gregg and his fellow economic point men shepherded through a bill that would ultimately make the federal government a major investor in banks throughout the country.
“It was in no way a conservative philosophical action, to have the government step up this way, but there was no choice,” Gregg said. “To wrap yourself around the wheel of ideology on this would have meant a massive breakdown in our financial system, and people on Main Street of America would have suffered.”
The question now is whether the Obama administration will let TARP end on Dec. 31 as scheduled, or extend it through next October, as Treasury Secretary Timothy Geithner has the authority to do.
Of the $700 billion Congress authorized the Treasury Department to use, $363 billion has been disbursed, according to a report by the Government Accountability Office.
Originally the funds were supposed to purchase so-called toxic assets that were weighing down bank balance sheets, but soon after the legislation was passed, the Treasury, under then-Secretary Henry Paulson, decided purchasing stakes in the banks was a better way to keep them from going under.
Critics argue that the government should not have invested so heavily in the banking industry.
“It seems to me [TARP] should be terminated,” said Randall Holcombe, an economics professor at Florida State University and a fellow at the Independent Institute, a nonprofit that studies political economics. “I don’t think it’s a benefit for the government to own the banks.”
Rep. Carol Shea-Porter, D-N.H., voted against the Emergency Economic Stabilization Act, which included TARP. She argues that there was little oversight attached to it and that the money would have been better spent elsewhere.
“We would have been better off investing the money in people on Main Street,” Shea-Porter said in an interview Thursday.
The Senate approved the legislation by a substantial margin, and the House, on its second try, passed it by a narrower vote. Without the legislation, Gregg argues, “cataclysmic failure” would have been worldwide and immediate.
The focus this fall in Congress is on what TARP has accomplished and how much longer it needs to continue.
Banks have repaid $70 billion so far, and the government has received nearly $7 billion in interest payments, according to the Government Accountability Office report.
Gregg said that if Geithner chooses to extend the program, all of the money returned by the banks so far and likely to be returned in the future should go toward reducing the national debt.
“There are a lot of people that want to get their hands on the money that’s coming back,” Gregg said.
Meg Reilly, a Treasury spokeswoman, declined to comment on the extension possibility because Geithner hasn’t made a decision. She said an extension would not be a commitment of additional funds.
Senate Banking, Housing and Urban Affairs Committee hearings lately have centered, in part, on the Treasury’s use of TARP funds to bail out the automobile industry.
In creating TARP to be flexible in order to stave off whatever risks might arise, Gregg said, the legislation made automaker bailouts possible, a step he strongly disagrees with.
Robert Hansen, senior associate dean at Dartmouth College’s Tuck School of Business, called the use of TARP funds to bail out carmakers a “complete betrayal” of the program’s purpose.
“The car industry [crisis] was not because of the credit crisis,” he said. “That was a long-term problem. And they went bankrupt anyway.”
Still, for many economists, there is no arguing that enacting the TARP program was better than doing nothing at all.
“Something had to be done,” Hansen said.
“TARP was, in my judgment, heroic,” said Terry Connelly, a former investment banker and dean of the Ageno School of Business at Golden Gate University in San Francisco. “It’s not a pretty thing for the government to do, but they stopped a nightmare for everybody.”
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