Neil Barofsky, the Special Inspector General in Charge of oversight for the bailouts, essentially a government watchdog, is releasing a report today in which he gives a blunt assessment for the TARP bailouts started under Bush and expanded by Obama: The Bailouts saved our economy, but cost us more in the long term.
[Barofsky] said the $700 billion bailout for the financial industry played a major role in rescuing the economy over the last year but also engendered anger and distrust among Americans because of secrecy and confusion about the way the program was handled...
"Despite the aspects of TARP that could reasonably be viewed as a substantial success," he wrote, "Treasury's actions in this regard have contributed to damage the credibility of the program and of the government itself, and the anger, cynicism and distrust created must be chalked up as one of the substantial, albeit unnecessary, costs of TARP."
Barofsky said public suspicion was fed by Treasury's decision not to require banks to report how they used their rescue money and its "less-than-accurate" statements describing the financial condition of nine large banks that benefited from large infusions of aid...
Overall, Barofsky said the cost of preventing a financial collapse fell into three categories:
•Taxpayers: The government has spent more than $454 billion through TARP programs. Forty-seven TARP recipients have paid back nearly $73 billion. That means more than $317 billion remains available. The program is set to end Dec. 31, but the administration could seek an extension until next October. Despite the repayments several of the program are not expected to yield returns to the taxpayer, including a $50 billion mortgage modification plan and some of the money injected into auto companies.
•The integrity of the industry: Many firms considered "too big to fail" last year, and thus in need of government assistance, are even bigger now. "Absent meaningful regulatory reform, TARP runs the risk of merely reanimating markets that had collapsed under the weight of reckless behavior," the report sates.
•The credibility of the government: Barofsky wrote that public antipathy for the bailout is fueled by "the lack of transparency in the program." Over the course of the year, Barofsky has called on the Treasury Department to seek more information from banks on how they use their taxpayer assistance.
Basically, the bailouts worked in the short term. But because of government ineptitude and all the secrecy, distrust has been seeded instead of consumer confidence, which is what was really needed for the market to correct itself. A full disclosure and better oversight in the bailouts would've helped, but both Bush and Obama almost gave the money away without really looking at the causes of the collapse; in essence both Presidents merely put a bandaid on an infected shotgun wound, when what we really needed was to fix the root of the problem and cover the wound. We should've given the bailouts and broken up the "too big to fail" companies to make sure it never happened again.