The Troubled Asset Relief Program (TARP), the $700 billion government fund to purchase assets and equity from large banks, officially ended at the beginning of October. In 2008, the Bush administration enacted the program following years of unregulated and reckless private banking actions that precipitated one of the most severe economic downturns in the nation's history. TARP has been an extremely contentious and politically toxic issue since its inception. In fact, an October 2010 Pew survey indicates that almost half of all Americans would be less likely to vote for a candidate who "supported the government providing major loans to banks during the 2008 financial crisis."
However, recent reports have indicated that the cost of TARP will be much lower than originally anticipated as the government recently "negotiated a plan with the American International Group to begin repaying taxpayers." The Treasury Department currently estimates the program will cost less than $50 billion.
The Impact of Federal Economic Recovery Efforts: According to a study by Alan Blinder, a former Vice-Chair of the Federal Reserve, and Mark Zandi, the chief economist of Moody's Analytics, federal recovery and state fiscal relief efforts, including TARP and the American Recovery and Reinvestment Act (ARRA), saved the economy from declining even further and spurred GDP growth.
The authors found , "if policymakers had not reacted as aggressively or as quickly as they did, the financial system might still be unsettled, the economy might still be shrinking, and the costs to U.S. taxpayers would have been vastly greater." Zandi and Blinder estimate that without these federal initiatives, an additional 8.5 million Americans would be without jobs in addition to the 8 million workers who lost their jobs since the recession started; they also estimate the nation's GDP would have been almost $1.4 trillion lower in the second quarter of 2010 than it was.
The following graph depicts the change in real GDP as a result of financial stabilization and recovery efforts. The graph appears in a recent Center on Budget Policy Priorities publication, Chart Book: The Legacy of the Great Recession , which comprehensively tracks economic circumstances in recent years.
Though TARP successfully staved off further financial collapse, the government could have taken further steps to prevent corporate malfeasance, increase accountability and transparency, limit executive compensation, and rein in the harmful banking practices of institutions that received public funds through the program.
The Need for Further Federal Action: Nevertheless, stubbornly high unemployment rates and continued state fiscal woes merit further federal efforts to incite job creation and state fiscal relief. President Obama's announcement last month of a proposed $50 billion infrastructure initiative is definitely a start, but more concerted policy efforts are needed to alleviate economic and fiscal pain.