US bank bailout was 'critical': Congress watchdog

© AFP/File Nicholas Kamm

AFP

WASHINGTON (AFP) - The US government's multi-billion-dollar bank bailout helped avert a second Great Depression and cost taxpayers much less than expected, but was far from perfect, a congressional watchdog said Wednesday.

The Congressional Oversight Panel said the controversial $700 billion dollar bailout, launched in 2008, provided "critical" support for financial markets at a key time and will cost $25 billion -- a fraction of the original estimate.

The Troubled Asset Recovery Program (TARP), which was signed into law by then president George W. Bush and taken up by Barack Obama, "provided critical support to markets at a moment of profound uncertainty," it said in its final report.

The comments come nearly three years after the government stepped in to oil the wheels of the financial markets after Lehman Brothers' collapse prompted vital inter-bank lending to dry up, leaving many household names in jeopardy.

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TARP is Done, but Count on Sequels

Gretchen Morgenson
NY Times

THE government is pulling a sheet over TARP, the Troubled Asset Relief Program created during the panic of 2008 to bail out the nation’s financial institutions. With the program’s expiration on Sunday, we can expect to hear lots of claims from the folks at the Treasury that it was a great success.

Such assertions would be no surprise from a political class justifiably concerned about possible taxpayer unhappiness, the continuing economic turmoil and the midterm elections. But if we have learned anything during this crisis, it is that the proclamations emanating from the Washington spin machine must be taken with an extra-hefty grain of salt.

Consider the claims made last summer that the Dodd-Frank financial reform act reduces the threats that large, interconnected banks pose to taxpayers and the economy when the banks are deemed too big to fail. Indeed, as regulators hammer out the rules governing derivatives transactions, it’s evident that the law has created a new set of institutions that will almost certainly be deemed too important to fail if they ever get into trouble. And that means there won’t really be an effective way to keep those firms from taking big, profitable, short-term risks that are dumped on the taxpayers when the bets fail.

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