Are we sure the bank baillout was a success?
"If there's one thing that has unified Democrats and Republicans — and everybody in between — it's that we all hated the bank bailout. I hated it. You hated it." — President Barack Obama, Jan. 27, 2010
"I don't oppose all wars. ... What I am opposed to is a dumb war. What I am opposed to is a rash war." — Illinois state Sen. Barack Obama, Oct. 2, 2002
This week the watchdog of the Troubled Asset Relief Program, Neil Barofsky, submitted his quarterly review and testified before Congress. In England, former Prime Minister Tony Blair also testified — for six hours under cross-examination — at a widely anticipated inquiry into the Iraq War.
TARP and the war in Iraq, begun with bipartisan congressional support, are now unpopular. In both cases, proponents argued that without action, we risked greater danger. President Obama defends TARP, which he voted for in the Senate and has expanded as President. But he bemoans having inherited a war he called "dumb."
Under TARP, the federal government committed hundreds of billions of dollars to bail out financial institutions. But for this bailout, argued the Bush and Obama administrations, banks would stop lending, and our entire financial system faced collapse — directly affecting all Americans.
Watchdog Barofsky, when asked last fall whether TARP was "working," said: "It really depends on your perspective. We were told by Treasury that the point was to increase lending. ... Today we hear that the purpose of TARP was to prevent systemic collapse." Lending has not increased, he said, but "it appears that we've avoided a total systemic collapse (emphasis added)."
Is TARP, then, a success?
Barofsky's report to Congress says that TARP can only be called a success if the program "is both managed well and its positive effects are enduring." Let's set aside the highly criticized management of the program.
Will TARP have "enduring positive effects"?
The argument for the bailout is that some institutions were "too big to fail." But Barofsky now says: "These banks that were too big to fail are now bigger. Government has sponsored and supported several mergers that made them larger. And that guaranteed that implicit guarantee of moral hazard. The idea that government is not going to let these banks fail ... is now explicit. ... In a lot of ways, the government has made such problems more likely.
Potentially, we could be in more danger now than we were a year ago."
So did TARP save us?
"Even if TARP saved our financial system from driving off a cliff back in 2008," writes Barofsky, "absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car."
As to the Iraq War, former Prime Minister Blair's detractors — during his testimony — shouted "liar" and "murderer." Blair stood his ground. He denied that he and President Bush decided on war irrespective of whether Saddam Hussein complied with the final U.N. resolution. He acknowledged mistakes in intelligence and in the execution of the war.
Wouldn't Saddam, left in power, have provided leverage over Iran?
"Let's be clear," Blair said. "There's another view of foreign policy in this instance, which is if we'd have left Saddam in place, he would have controlled Iran better. I really think it's time we learned, as a matter of sensible foreign policy, that the way to deal with one dictatorial threat is not to back another."
Would you make the same decision?
"Don't ask the March 2003 question, but ask the 2010 question. Suppose we back off. What we now know is that he retained absolutely the intent and intellectual know-how to restart a nuclear- and chemical-weapons program when inspectors were out and the sanctions were changed. ... This isn't about a lie or a conspiracy or a deceit or a deception. It's a decision. And the decision I had to take was could we take the risk of this man reconstituting his weapons programs or is that a risk that it would be irresponsible to take?"
"The decision I took — and frankly would take again — was if there was any possibility that he could develop weapons of mass destruction, we should stop him. That was my view then, and that is my view now. ... (I feel) responsibility, but not regret, for removing Saddam Hussein. I think that he was a monster. I believe he threatened not just the region but the world."
Both the Iraq War and TARP are monumental decisions with far-reaching consequences. We don't know what would have happened had we not bailed out the banks. We don't know what would have happened had we not gone into Iraq. But even in opposing the Iraq War back in 2002, Obama said, "The world and the Iraqi people would be better off without (Saddam)."
Well, are we better off with TARP? It sure seems as if we are driving on the same winding road — only "in a faster car."