I just finished reading Hank Paulson’s “On the Brink”, and though the book was a boring, blow-by-blow recount of the events, it shed some light on the near collapse of the global financial system in the fall of 2008.
It did help me answer the question of whether TARP was necessary: it wasn’t.
TARP in of itself was pretty harmless; most of the funds have or will be paid back, with interest, to taxpayers. Toxic assets turned out not to be a real problem: it was a good-old-fashioned run on the bank; a global run on all the banks.
TARP never lived up to its name: It never purchased any “Troubled Assets”. It simply played the role of “lender of last resort”. A role typically reserved for the Federal Reserve, and as such avoided some short term pain. We will never know what could have happened.
But the story does not end here.
TARP opened Pandora’s box and enabled the US Government to do or attempt to do things that a few months prior would have been unthinkable.
TARP changed the American psyche so talk of “hundreds of billions” became acceptable in polite company.
TARP led to the Stimulus, GM bailout, $13T budget deficit, red ink as far as the eye can see.
TARP forced us to cross the Rubicon. Led by the unwavering self-confident, never-doubt-myself-for-a-minute but willing-to-change-my-mind-at-my-convenience Paulson, we moved into virgin territory. And the damage caused will take decades to undo.
Moral hazard on a slippery slope! We could and should have done without TARP. Libertarians and House Republicans were right after all.
By the way, Hank portrayed John McCain as a bumbling idiot, unable to grasp the situation let alone formulate a cohesive plan. Maybe my faute-de-mieux theory was right?