Along with 90 of his House Republican colleagues, Paul Ryan voted for TARP four years ago. At the time, he argued that the bank bailout — initially estimated to cost $700 billion — was necessary “in order to preserve this free enterprise system…if we fail to do the right thing, heaven help us.” Ryan also voted that year to support the auto bailout.
Ryan’s pro-bailout votes have raised the hackles of many conservatives, and he breaks from Mitt Romney on the auto bailout, which the former Massachusetts governor opposes. Over the past few years, however, Ryan has soured on the same bailouts that he voted for, arguing that they’ve been diverted from their original purposes and manipulated by administration officials for political purposes.
In his 2013 budget, the House Budget chairman accuses the Treasury Department of having diverted TARP from its original purpose of “providing targeted assistance to unlock credit markets” and turning the program “into an ad hoc, opaque bailout and a slush fund for large private institutions.” Although Ryan’s budget acknowledges that TARP “succeeded in halting a systemic panic,” the budget also concludes that TARP has “morphed into crony capitalism at its worst.”
Ryan has also used his recent criticism of TARP to justify his vote for the auto bailout: ”The whole purpose of voting for that auto bill was to prevent the auto companies from getting TARP dollars,” he told Fox Business Network in 2010.
Ryan has subsequently turned the auto bailout into a political weapon as well: In his 2013 budget, he accuses the Obama administration of using the auto bailout “to give politically favored groups a better deal than they were entitled to under bankruptcy law” and using the bailout as political leverage to “strong-arm automakers into supporting new fuel-economy regulations.”
What really happened under the bailouts? It’s true that TARP funds have been diverted to non-financial institutions: In late 2008, the Bush administration decided to divert TARP funds to General Motors, Chrysler, and other auto giants to prevent looming bankruptcy. Under the Obama administration, TARP funds were also designated to prop up the housing market.
And it’s not just Republicans like Ryan who have major complaints about how the bailout was implemented: TARP’s former inspector general Neil Barofsky believes that the Treasury Department was too cozy with the banks they were meant to regulate, accommodating them for fear they wouldn’t participate in the bailout. “The suspicions that the system is rigged in favor of the largest banks and their elites, so they play by their own set of rules to the disfavor of the taxpayers who funded their bailout, are true,” Barofsky recently told The New York Times.
That said, one of the biggest criticisms coming from independent watchdogs is not that TARP did too much but that it did too little. Barofsky’s former office, the special inspector general for TARP, slammed Treasury earlier this year for distributing only 3 percent of funds meant to support homeowners in the hardest hit communities, for instance.
So what would Ryan do to prevent more bank bailouts in the future? It’s not entirely clear. Certainly he doesn’t like the Obama administration’s solution: Ryan’s 2013 budget would repeal the new rules meant to stop Too Big to Fail by empowering the FDIC to help liquidate financial firms that are on the rocks. As I’ve explained before, Ryan argues that the new “resolution authority” would actually make future bailouts more likely, not less, by allowing the government to keep systemically important parts of the troubled firm running.
But Ryan doesn’t propose much of an alternative, either. He’s previously made sympathetic noises about revisiting Glass-Steagall, as Think Progress has noted, arguing that banks shouldn’t “take undue risks” and act like hedge funds. But his 2013 budget’s only other suggestion would be to “revisit flawed financial reform regulations” to ensure they aren’t burdensome. So while Ryan has plenty of criticism for the previous bailouts and Obama’s reforms to make future ones less likely, his own plan would simply revert parts of the financial system back to the pre-2010 status quo.