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No, Buffett—TARP was 'Scarlet Letter': Kovacevich

Did TARP work?

Warren Buffett and former Wells Fargo boss Richard Kovacevich are friends, and Berkshire Hathaway's largest holding is Wells Fargo. Of course, even friends can disagree, but that might be a bit of an understatement when it comes to TARP—the Troubled Asset Relief Program, largely credited with saving the financial industry from collapse in 2008.

In his latest interview on CNBC's "Squawk Box," Kovacevich said he stands by the assertion he made last month on the show that TARP ruined the banks. He was responding Friday to comments made a day earlier by Buffett and Hank Paulson, the major architect of the financial bailout.

(Flashback: TARP didn't save banks, it ruined them: Kovacevich)

Asked what he thought of Kovacevich's harsh criticism of TARP in September, Buffett said the rescue package was necessary to restore faith in the banking system. Confidence is "like oxygen," he continued, "when it's there, you don't even notice it. When it disappears, it's the only thing you notice."

Appearing alongside Buffett, former Treasury Secretary Paulson said: "When capital was put in what you will see, if you look at it, is that confidence was increased. Credit spreads came in, the markets did better. It made a huge difference. It was a turning point."

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Richard Kovacevich in 2007.
Daniel Acker | Bloomberg | Getty Images

Kovacevich said Friday, "How can anyone claim that TARP increased the confidence level ... after TARP was announced the stock market fell by 40 percent [and] bank stocks fell by 80 percent."

Paulson was looking at the immediate impact of TARP, while Kovacevich took a longer-term view because the stock market didn't bottom out until March of 2009.

Either way, Buffett said history will judge the bailout more favorably that Americans do now.

But Kovacevich questioned that predciction—arguing that people believe incorrectly that "Main Street was not saved and Wall Street was."

All the major banks, whether they needed it or not, were forced to take TARP money in an effort to recapitalize the whole industry at once—a move Kovacevich has contended was too heavy-handed.

Wells Fargo never wanted the government's money, he said—calling it a "Scarlet Letter" put on banks. "It had a negative impact on the confidence and I think the facts support that."

He said he would have rather seen the government bail out the banks and financial institutions that had needed it at the time but leave the others that were in fine shape, like Wells Fargo, alone. "We never used a penny of TARP."

By CNBC's Matthew J. Belvedere. Follow him on Twitter @Matt_SquawkCNBC.