The political price of backing invaluable TARP

Monday, July 5, 2010

IT'S ALMOST time to say goodbye to the Troubled Assets Relief Program (TARP), the $700 billion bailout fund that pretty much everyone hated, even though it arguably saved the U.S. economy. Unable to win Republican support for their plan to pay for the financial reform bill with a tax on big banks, Democratic leaders in Congress opted to get the cash by closing down TARP now, three months ahead of its scheduled Oct. 3 sunset. For accounting reasons, this frees up $11 billion. It won't affect the Treasury Department's ability to respond to any new crises, which probably would have required additional legislation anyway. Thus ends the much-maligned "Wall Street bailout." It spent or committed only $475 billion of the authorized $700 billion and turned a profit on the capital it provided the banks. Its much-less-than-expected net costs -- now $105 billion -- are accounted for by mortgage aid to homeowners and the bailouts of the auto industry and insurer AIG.

One hundred five billion dollars is a lot of money but modest compared to the costs of financial Armageddon. Nevertheless, TARP-

bashing appeals to voters who understandably recoil at direct government aid to big business. Several legislators, especially Republicans who heeded President George W. Bush's call to back the program in October 2008, have paid a heavy political price in this election year. Heading the list of TARP martyrs is Sen. Robert F. Bennett (R-Utah), defeated in his state's Republican primary by an anti-TARP challenger. Six-term Republican congressman Bob Inglis met a similar fate in South Carolina. In the same state, Rep. J. Gresham Barrett, also a pro-TARP Republican, lost the gubernatorial primary. You could chalk up moderate Republican Trey Grayson's defeat in Kentucky's GOP Senate primary to TARP. Mr. Grayson was not even in Congress at the time of TARP, but winner Rand Paul linked him to Kentucky's senior senator, Minority Leader Mitch McConnell, who did back TARP. Rep. Peter Hoekstra has gone from leading the race for the Republican gubernatorial nomination in Michigan to trailing, in part because of his TARP vote.

This says a lot about American politics -- especially the internal politics of the Republican Party -- none of it good. In truth, any member of Congress who supported TARP, Republican or Democrat, took a sensible risk that has been vindicated by the program's results. To be sure, not all TARP backers face defeat this year; Sen. John Thune (R-S.D.), to name one, is running unopposed. But the willingness and ability of certain candidates to create and exploit misconceptions about TARP in contested races is discouraging -- and will make it that much harder for politicians to take similar risks for the public good. As for this year's TARP martyrs, there's not much for them to do but reflect on the sad maxim that no good deed goes unpunished.

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