Was TARP Really That Effective?

Federal Competence: Think the Troubled Asset Relief Program has performed poorly? So does a government auditor. He says it has lacked transparency, been mismanaged and failed some of its core objectives.

Though he believes the Troubled Asset Relief Program has helped both Wall Street and Main Street - which is not to say that it's helped the overall economy - Treasury Department Special Inspector General Neil Barofsky says the program has failed to increase lending, particularly to small businesses.

This has happened even as overall lending continues to contract, "despite the hundreds of billions of TARP dollars provided to banks with the express purpose to create lending."

Barofsky also notes that unemployment is higher than it was at the beginning of the program "and for far too many, the recession has ended in name only."

"Finally," the inspector general writes in his quarterly report to Congress, "the most specific of TARP's Main Street goals, 'preserving homeownership,' has so far fallen woefully short."

How could this happen? Didn't the Democrats fix this problem through the $75 billion Home Affordable Modification Program?

While the $700 billion TARP might cost less than anticipated - the loss could be a mere $51 million to $66 billion - the IG says "costs can involve far more than just dollars and cents."

Barofsky believes TARP has created a moral hazard while restraining competition in the financial industry.

"The biggest banks are bigger than ever, fueled by government support and taxpayer-assisted mergers and acquisitions," the report says.

But, the inspector general adds, there's "another even more fundamental nonfinancial cost": TARP poses a potential harm to the government's credibility.

Many Americans, writes Barofsky, "continue to view TARP with anger, cynicism and mistrust." While he says some of the hostility may be misplaced, "much of it is based on entirely legitimate concerns about the lack of transparency, program mismanagement, and flawed decision-making processes that continue to plague the program."

Why shouldn't Americans be cynical about TARP? The Treasury Department for more than a year refused to require recipients to account for TARP funds. It promoted programs without meaningful goals or metrics for success, says Barofsky, and made "critical and far-reaching decisions without taking an even modestly broad view of their impact."

Examples of the program's managers acting rashly include the unnecessarily hasty shuttering of car dealerships "without considering the potential of devastating job losses" and a failure to negotiate "robustly on behalf of the taxpayer" when they bailed out American International Group.

Barofsky is also concerned about how much of TARP's burden is actually falling on the taxpayers. Treasury painted a rosy scenario two months ago, saying the loss for the AIG bailout would be a mere $5 billion, not the $45 billion projected earlier.

Barofsky believes the revised figure, the product of a new methodology that Treasury isn't disclosing, could be deceiving. The practice "fails to meet basic transparency standards," the report says.

Though the Obama administration has had nearly two years to administer TARP - the Bush White House had three months - it has yet to become a model of federal propriety despite the rosy promises of a new, improved bailout.

Rewind to January 2009, four days before Barack Obama moved into the White House. He talked about "the frustration so many of us share about how the first half of this plan was implemented."

Before ever taking the oath of office, he promised to "fundamentally change some of the practices" in the bailout program and to re-brand it.

While still president-elect, the Illinois senator pledged that taxpayers would be able to "see where their money is spent."

Yet we learn Tuesday that TARP is ineffective and as opaque as Joe Biden talking off the cuff. Obama should have ended the program that was passed under a Democratic Congress and Republican White House rather than trying to re-brand it.

While contemplating the enormity of it all, remember that the federal apparatus that's running TARP is the same bureaucracy that the Democrats want to operate the country's health care system.

If Washington can't handle a $700 billion bailout program, how poorly will it manage a $2.5 trillion chunk of the economy?

The answer is, of course, more poorly than anyone can even imagine. Government is good for a few things, but when it tries to take over private-sector tasks, its record of failure is staggering.