With bank TARP repayments now flowing back to the government and, with the notable exception of Citi, probably a lot more to come, is it time to consider shutting down the program? I would argue that it should be terminated.
As originally sold to the Congress and by extension their constituents this program was a temporary measure intended to provide for the recapitalization of a part of the banking industry. Recall that the original intent was to purchase toxic assets from the banks and that morphed into the preferred stock purchases which enhanced the banks’ capital ratios. It appears as if it has more or less accomplished what it was intended to do (some would disagree on the extent of its curative effect), therefore it seems to make sense that it end.
The fly in this ointment is that the program has in fact morphed even more since its enactment and early transformation. The funds available to the Obama administration have been used to address capital adequacy problems in the insurance industry and it has become the primary source of funding for the bailout of the Detroit auto makers and will soon be used to shore up their parts suppliers. In short, it has become a $350 billion slush fund that appears to be available for whatever emergency or situation that can be defined as an emergency that happens along.
Aside from the obvious advantage to the administration of having this ready source of cash available, its existence enables Congress to evade its responsibility to appropriate funds for specific purposes. I am not an expert on constitutional law but the entire episode strikes me as something not intended by the basic framework of the Constitution. On a more practical level, the continuing existence of TARP as a fund to be used at the discretion of the administration would seem to result in opacity and thwart the Obama claims to enhanced transparency.
Ultimately, we need elected representatives passing judgment on major expenditures of funds. That’s the way the system was designed and anything less is simply not democratic. Open debate and the ability for all to see the contents of proposed legislation is the only thing that does stand between what we have now and a much more odious form of government.
Some will argue that we are not out of the woods yet and, therefore, we need to leave TARP in place to grapple with future problems. That might indeed prove to be true but in that event, Congress should be the body that provides those funds. The emergency that created TARP has passed. It is doubtful that any future requirements are going to require immediate action, in fact one could argue that after the original brush fire there was no need for the fund to have continued to disperse money. The auto company bailouts could and should have been an issue debated and authorized by Congress, not handled in secret negotiations by the administration.
TARP had its uses. The exigencies that led to its enactment have long since passed and it’s time that TARP was retired as well. Moving back to the proscribed manner for the enactment of legislation and appropriation of funds will serve the Republic well.