The debate over extending TARP steps onto center stage

While the Obama administration floated a trial balloon regarding the possible extension of TARP in The Washington Post Thursday, any hope for that balloon could be quickly burst in hearings today before the Congressional Oversight Panel. Members of the House and Senate already are considering the introduction of bills to kill the unpopular program.

The Congressional Oversight Panel Thursday morning will listen to five experts in a hearing dubbed, "Taking Stock: Independent Views on TARP's Effectiveness."

Presenting testimony will be:

  • Dean Baker, Co-Director, Center for Economic and Policy Research
  • Charles Calomiris, Henry Kaufman Professor of Financial Institutions, Columbia Business School
  • Simon Johnson, Professor of Global Economics and Management, MIT Sloan School of Management, and Senior Fellow, Peterson Institute for International Economics
  • Alex Pollock, Resident Fellow, American Enterprise Institute
  • Mark Zandi, Chief Economist and Co-Founder, Moody's
If all these economists question the effectiveness of TARP, their voices will just add to the chorus already singing in Congress that this program needs to end. Rep. John Larson (D-Conn.), Chairman of the House Democratic Caucus, thinks leftover TARP money should be redirected to pay for road and bridge projects that would create jobs. Sen. John Thune (R-S.D.) wants to end the bailout program completely to keep if from becoming a "political slush fund," according to the Post.

The Obama administration is thinking about using most of the leftover funds to reduce the national debt, but it wants to leave TARP in place in case of future financial problems. About $139 billion in original TARP funds remain unallocated and available to the Treasury Department for spending. Banks have paid back $71 billion, and $10 billion has been collected in interest and dividends.

TARP by Any Other Name

In the program's early days, Treasury was collecting only about 66 cents on the dollar on the repurchase of warrants, according to the Congressional Oversight Panel. Thomas Seay, told me by email this morning that "their more recent repurchases of stock warrants, since the release that report, have been significantly closer to our estimates." So, at least the banks are repurchasing the warrants at a price fairer to the taxpayer.

TARP remains unpopular with the public because of the perception that it bails out Wall Street and leaves out Main Street. The public remains angry about the generous compensation packages that Wall Street firms continue to pay their executives.

Treasury is trying to change that image by directing the remaining funds to help small businesses, community banks and struggling homeowners. In fact, the Obama administration is trying to go back to using the bill's official name, the Emergency Economic Stabilization Act, rather than TARP, to channel the public's anger away from continuing the program.

The name change won't do it. The administration would be better off recommending the money from TARP be used either to pay down debt or to stimulate jobs using new legislation directed squarely at helping out-of-work Americans. The administration must prove that Main Street and not Wall Street is its main priority now.

Lita Epstein has written more than 25 books including Trading for Dummies and Reading Financial Reports for Dummies.
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