It's the second anniversary of TARP, and people are still angry about it. The program's costs, however, continue to drop; right now, they amount to $66 billion -- out of $700 billion spent -- and that number could continue to decrease. That's even with loss-leaders like the HAMP program, AIG and the auto bailouts included.
Critics like to point out that the TARP figures don't account for all of the support that we've given to the economy. SIGTARP Neil Barofksy, for instance, figures the entire amount of money taxpayers have committed is $3.7 trillion, a much larger and more frightening figure. But most of the money is either backstopping the housing market through Fannie Mae and Freddie Mac or on the balance sheet at the FDIC and the Federal Reserve. Now, citing this figure may be the most accurate measure of the government's support, but it's definitely not the most useful, simply because if that price came due we would be facing a near-doomsday scenario.
For instance, if $800 billion in loan guarantees in the various housing agencies is actually called in, that means $800 billion in home loans have failed. The same is true of the FDIC's guarantees and the various assets on the Fed's balance sheet. Losses of that magnitude wouldn't be a budget problem, they'd be another epic financial crash. It's just not very pertinent to say that the government has $3.7 trillion at risk, since if that number was actually called up, we'd have much bigger problems. Prepare your body for the Thunderdome kind of problems.
Barofsky recognizes this, even when TARP critics don't, writing that "the numbers set forth in this section are not a calculation of the risk of loss to the Federal Government." His report also notes the steady reduction of that scary number as the crisis has receded. More progressives should come around to the idea that, mismanaged as it was, these programs successfully demonstrated how government creates the framework for a free-market economy and needs to intervene to protect it from its own excesses.
-- Tim Fernholz
