George W. Bush Looks Back at TARP: His Most Difficult Decision Point


The Decision Point: As Senators John McCain and Barack Obama listen, President George W. Bush announces the TARP program on September 25, 2008.

In his new memoir, Decision Points, George W. Bush recounts the battle over the Toxic Assets Recovery Program (TARP) which is still having an impact in GOP politics. He quotes Sen. Jim Bunning (R-KY) as saying TARP would “take away the free market and institute socialism in America.”  A full page ad sponsored by Americans for Tax Reform and its president, Grover Norquist, simply said “Dear President Bush: No.”

The TARP critics said it was better to let the American banking system fail even if the nation had to endure a depression. Former Gov. Mitt Romney (R-MA) disagreed, said the critics had no realistic alternative, and supporting TARP “was the correct and courageous thing to do.”

The legislation was also endorsed by the conservative magazine National Review.  This week talk show host Rush Limbaugh asked the former President: “If you had it to do over, would you do the TARP bailout?” Bush responded: “Yeah, I would have. I didn’t like it at all, but when you’re president you get faced with stark choices, and I couldn’t have lived with myself had the country gone into a deep depression, and people’s lives would have been affected.”

In Decision Points he says:

The strategy was a breathtaking intervention in the free market. It flew against all my instincts. But it was necessary to pull the country out of the panic. I decided that the only way to preserve the free market in the long run was to intervene in the short run. It helped spare the American people from an economic disaster of historic proportions. I had to safeguard American workers and families from a widespread collapse. . . It was a hell of a lot better than a financial collapse.

The Bush Administration’s outlay of $350 billion in TARP funds will certainly break even, and the government has already  made $28 billion in profits. All the major financial institutions which received funds from the Bush administration were  eventually able to meet requirements established by the Treasury Department.

The remaining investments in banks are small. Even the Obama administration has a fairly admirable record on TARP. They will be able to demonstrate that 90 percent of the original $700 billion will not have been spent or was returned to the taxpayers.

All six of the biggest U.S. credit-card issuers have returned their bailout money, and these initial TARP funds were repaid about a year after their distribution. Citigroup was one of the hardest hit banks and received $45 billion in bailout money, more than any other financial institution. The Treasury paid $3.25 a share for its stake in the bank during the 2008 credit crisis. The good news for the taxpayers is that the shares increased steadily in value, and the government received a hefty profit of over $9 billion.

This is a far different outlook than what was predicted during the final weeks of the 2008 campaign. At that time many politicians were predicting TARP would lose $700 billion. Without TARP, many people with pension funds and annuities would have lost everything. TARP unfroze the credit markets in November and December of 2008, restored confidence in the banking sector and stopped any further runs on the dollar. In his recent TARP testimony, Treasury Secretary Timothy Geithner said:

The program was essential to averting a second Great Depression, stabilizing a collapsing financial system, protecting the savings of Americans and restoring the flow of credit that is the oxygen of the economy. It achieved all that at a lower cost than anyone expected. . . The much less severe savings and loan crisis of the late 1980s and early 1990s cost 2 1/2 times that as a share of our economy. . .

The U.S. financial system has been completely overhauled and is in a much stronger position today than before the crisis. In fact, the weakest parts of the system are gone. Of the 15 largest financial institutions before the crisis, four are no longer independent entities. Five were forced to restructure. Two are subject to much stricter federal oversight. Ten have seen major changes in senior management and boards of directors.

A Washington Post editorial on the day TARP ended, October 3, 2010, noted:

TARP, reviled by populists of the left and right, produced more benefit for the U.S. economy at lower cost to taxpayers than even its strongest initial supporters expected. . . There is no denying that TARP is not the sort of thing the U.S. government should normally undertake.

Still, the costs of TARP — tangible and intangible — have to be considered in the context of the unprecedented emergency that faced the policymakers who adopted it. They must be weighed against the costs of not intervening. Financial stability is a public good, but it isn’t free. TARP helped save the United States from an economic collapse and bought time to get America’s house in order under calmer circumstances. Goodbye, TARP. Good riddance — and thanks.


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