Fisher Investments Editorial Staff
US Economy, Media Hype/Myths

TARP Controversy

By, 12/10/2009

Story Highlights:

  • The Treasury announced Wednesday it will extend the TARP program for another 10 months.
  • It's been over a year since TARP was enacted, and some say though the program stemmed the financial panic, the program's overall effectiveness should be questioned.
  • The most important evidence weighs in TARP's favor—stocks and the economy are in recovery.
  • At this point, whether TARP is extended or not is irrelevant—along with aggressive fiscal and monetary stimulus, it prevented the worst case economic scenario.

______________________________________________________________________________ 

Seems controversy's the soup du jour lately: Tiger Woods, Climategate, and chief among them—by way of dollar value if nothing else—the Troubled Asset Relief Program (TARP).

The Treasury announced Wednesday it will extend the TARP program for another 10 months—through October 3rd of next year—with particular concentration on easing foreclosure rates and increasing loans to small business. (Never mind the recent household survey implied growth in the self-employed even without this initiative.)

It's been almost 14 months since TARP was signed into law. And after numerous incarnations—toxic asset relief fund, bank recapitilization fund, auto industry savior, and public-private toxic asset relief fund—the program would've ended this December had Treasury Secretary Geither not extended it (and tacked on its latest identity). But is it the right move? Even before Geithner made his announcement, concerns over the program's effectiveness proliferated. The Congressional Oversight Panel, a bailout watchdog group, conceded that though TARP was instrumental in stopping the financial panic, it failed in other broad initiatives like spurring job growth and stemming small bank failures.

Though neither job growth (that's the fiscal stimulus package's domain) nor stemming smaller bank failures (what the FDIC's for) were on TARP's original agenda—we agree its execution has been far from perfect. But there have been some bright spots—banks are paying back bailout funds sooner than expected, and the US is experiencing stock market and economic recovery. In fact, none of that would be possible without the brightest spot of all—big US banks and global capital markets generally stabilized, and the world is in recovery mode.

At this point, whether TARP is extended or not is irrelevant. Along with aggressive fiscal and monetary stimulus, it prevented the worst case economic scenario. (Whether the so-called Armageddon scenario would've happened at all with or without these measures is one for historians to debate forever.) Not to mention the fact approximately $590 billion in fiscal stimulus still waits in the wings, and the Fed has amply communicated it will maintain an accommodative policy for awhile. (If we had to choose, it's probably better to do too much stimulus rather than sunset it too soon. Inflation worriers can read more about why here.)

As we've argued before, stimulus is never perfect—all government programs are inherently faulty and inefficient. But in the face of a spiraling panic, when speed trumps precision, a blunt instrument beats slow and steady. And while things aren't all sugarplum dreams today, there is something to be said for not staring down another nightmare before Christmas this season.

 

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Click here to rate this article:



*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Subscribe

Get a weekly roundup of our market insights.Sign up for the MarketMinder email newsletter. Learn more.