I’ve finally got around to reading the Vanity Fair TARP investigation, and there are some good bits, like this:
There were no internal controls to gauge success or failure. The goal was simply to dispense as much money as possible, as fast as possible. When Treasury began giving billions to the banks, the department had no policies in place to ensure that the banks were using the money in ways that met the purposes of the program, however defined. One main purpose, as noted, was to free up credit, but there was no incentive to lend and nothing to stop a bank from simply sitting on the money, bolstering its balance sheet and investing in Treasury bills. Indeed, Treasury’s plan was expressly not to ask the banks what they did with the money.
Given the sheer number of banks which received TARP funds after the most cursory oversight — indeed, every single bank which applied for such funds was approved — it’s inevitable that there will be some bad apples among them, and Vanity Fair has found a few of those apples. And more generally, as Andrew Leonard points out, it’s not clear what the alternative was:
They drop the ball by not tackling the $64,000 question more directly: Would it have been better to do nothing at all, and let the big banks fail, thus running the very substantial risk that the worst credit crunch in living memory metastasize into a full-fledged depression? Barlett and Steele could have found plenty of economists who, despite holding their nose at how irresponsibly the mass infusion of capital into the banking system was conducted, do believe that immediately stabilizing the system was a critical priority in the feverish months of last fall.
But the authors don’t quote a single economist.
I think it’s entirely fair to criticize TARP for having no stated aims or criteria of success. But there is an argument that there simply wasn’t time to do anything more considered. The problem isn’t that Treasury veered wildly from the original idea behind TARP — buying up bad loans — to a new idea of injecting equity. The problem is that after it made that decision, no one stopped to ask how best to enact the new policy.