Friday, October 1, 2010

What did TARP accomplish?

"If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure."
Mervyn King, the governor of the Bank of England
Matt Welch at Reason.com looks at TARP (the big government Troubled Asset Relief Program to save our nations banks and US car makers) and asks, what did it accomplish? There are some who claim it was a big success - but measured against what criteria? That things could be worse? That the economy did not completely and utterly collapse?

Here is what President Bush said would happen if the US Congress failed to take "immediate action" to spend $356 billion to save the banks...
More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically. And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs. Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And ultimately, our country could experience a long and painful recession.
Keep in mind this was said towards the end of 2008. What has happened since? Money was given to Banks, two US car companies purchased, a huge Stimulus bill approved, and still every single item in this list has occurred.

Bottom Line

The Government (Republican and Democrat) simply has no clue how to fix an ailing economy. The government can feed people via welfare & unemployment insurance, it can provide some limited number of temporary jobs outside of civil service, but it can not, by itself, prevent a recession or turn it around. In fact government intervention just makes recessions worse by creating uncertainty and propping up failed businesses to complete with successful businesses. Money is spent to "save jobs" because this makes voters happy but in the long run they are upsetting maket forces that reward the talented companies and punish the inefficient under the flag "Too Big to Fail". Many of these businesses are failing for a reason - throwing money at them just postpones the inevitable.

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2 Comments:

Blogger swedemom said...

The thing that bothers me the most about TARP, is that I don't see how it prevented any of the problems that were predicted. I hate when they throw money at problems but don't really look for good, effective solutions.

October 2, 2010 at 8:39 PM  
Blogger Gary W Kibble said...

UPDATE:
Inspector General blasts Treasury for bungling everything TARP

http://www.washingtonexaminer.com/opinion/blogs/beltway-confidential/inspector-general-blasts-treasury-for-bungling-everything-tarp-105722388.html

October 26, 2010 at 3:31 PM  

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