TARP Oversight Panel Releases Final Report
The Congressional Oversight Panel for the Troubled Asset Relief Program (TARP) said on Wednesday that the recent bailouts of General Motors and Chrysler "extended the 'too big to fail' guarantee and its associated moral hazard to non-financial firms." The panel made the comments in its final report on the 2008 financial collapse, which it released Wednesday.
"The implication being that any company can receive a government backstop, so long as its collapse would cost enough jobs or deal enough economic damage," the report said. The report will be the last from the panel, which is scheduled to dissolve six months following the October 2010 expiration of TARP's authority. Led by Senator Ted Kaufman, the group has repeatedly complained that the Treasury Department was not sufficiently transparent in its work while also calling many government housing initiatives ineffective.
Treasury officials defended the program in response to the report, saying that TARP and other programs "broke the back of the panic" at the height of the nation's worst financial crisis since the Great Depression.
The TARP oversight panel, meanwhile, also said that the Treasury's foreclosure-prevention programs have "largely failed to get off the ground," in its report. "TARP will cost less than expected in part because it will accomplish far less than envisioned for American homeowners." The Congressional Budget Office originally estimated the cost of the TARP program at $356 billion, an estimate that has since been lowered all the way down to just $25 billion. The panel said, however, that the true cost of the "too big to fail" legacy can't be measured in dollars.
At the height of the recession, 18 of the nation's large financial firms received a total of $208.6 billion in TARP money. "Credit-rating agencies continue to adjust the credit ratings of very large banks to reflect their implicit government guarantee. Smaller banks receive no such adjustment, and as a result, they pay more to borrow relative to very large banks," the panel pointed out.
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