Matthew Yglesias » In Praise of TARP

TARP was a smashing success EXCEPT that its benefits were skewed towards the benefit of wealthy bank executives and shareholders. That is the big problem. That problem also creates the moral hazard that increases chances of a repeat of the same kind of crisis.

Matthew Yglesias » In Praise of TARP: "TARP, the Troubled Asset Relief Program, looks set to go down in history as one of the most unfairly maligned policy initiatives of all time. The government took hundreds of billion dollars, gave it to banksters, and in exchange all we got was this lousy$7 billion in profit. Which is to say that even if TARP had no positive impact on the economy whatsoever, it had a negative cost to taxpayers. How many programs can you say that about? And how many of them are toxically unpopular? ...TARP was both a good idea and nothing less than an exposure of the myth of the free market. There’s an idea out there about a free market that operates “naturally” and produces a certain distribution of wealth and income. Any further interventions into that marketplace to ensure that prosperity is broadly shared constitutes some kind of illegitimate “redistribution” of wealth and income from its natural state. This is not, however, an accurate description of how any economy featuring a modern banking system works. A world in which we simply didn’t have banking and finance would be, overall, a much poorer world. But a world with banking and finance requires various forms of management—monetary policy, regulation of the financial system, and intervention amidst panics and crises. TARP and the associated activities of the Federal Reserve were examples of such intervention and were good ideas. But they highlight that public policy decisions are integral to the creation and sustainment of modern capitalist economies. Under the circumstances, wise and moral policymakers will necessarily attempt to ensure that the prosperity they create is broadly shared by law-abiding members of the community.