TARP (and many of the other related financial programs of 2008/2009) were essentially a statement by the U.S. Government that they would stand behind banks.
It's no less a statement than the one made during the Great Depression that restored confidence in the banking system (the establishment of FDIC).
The global financial crisis of the past two years is the second great fiscal crisis to occur in the last 80 years, and as with all great crisis, it required a statement of strength from the federal government. Therefore, TARP was born.
So did TARP work?
Well, two years ago, when huge financial institutions were collapsing all around us, there was little confidence to be found. It is still a subject of debate on whether the government provided the needed confidence or it somehow reemerged despite governmental clumsy efforts. Regardless of the cause, confidence is bouncing back in a small way and that is what's required for economic recovery. Things are better than they were. Was it TARP? Perhaps.
It turns out that TARP costs the American taxpayer far less than the original amount pledged to bailout institutions. Money market accounts and bank institutions are under far less pressure for immediate withdrawals, thus allowing these deposits to stay in the economy, leveraged out through loans. The banking sector is not out of the woods yet, but it is in a better shape than it was a year ago and part of the reason is that public psychology has changed; far fewer believe that most banks are about to collapse.
The administration will certainly do all they can to highlight the benefits of TARP. After all, it is election time and politicians do what is necessary to outline their wisdom to the electorate. But let's recognize that TARP was essentially a statement to the public that the government will protect banks. It was a adrenaline injection of confidence into a collapsing system. It was mostly about psychology.
The challenge going forward is to back up the confidence injected by the government with real results from banks. Some progress is being made but the future solvency of institutions will be impacted by real estate write-downs and future economic growth. And the overall economy still faces challenges like massive deficits and a floundering dollar. 10% unemployment is an irritating thing when one is hoping for an economic bounce back. Real problems remain so we are not out of the woods yet.
So farewell TARP.
Sorry you were needed and glad to see you go. Now lets all root for better economic times. The last thing we all want is another need for governmental intervention. I for one DO NOT want TARP 2 (or the environment that opened the door to this blunt fiscal instrument).
One TARP was quite enough.
Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 and 2010 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at email@example.com.