Mitt Romney’s TARP problem

March 4, 2010

The 2008 financial crisis killed John McCain’s chances of becoming president. But will it kill Mitt Romney’s, too?

The former Massachusetts governor and private equity investor supported the $700 billion bank bailout then and he still supports it today, albeit with a host of reservations and qualifications. The problem, of course, is that the Troubled Asset Relief Program is wildly unpopular among Republicans. And Romney, one can safely assume, would like to be their presidential nominee in 2012.

Yet one can hardly think of a more toxic issue for a GOP candidate in the Age of the Tea Party than support for TARP. Especially a candidate with a Wall Street background. Especially a candidate who many party activists suspect has the heart and soul of a raging moderate. To many conservatives, TARP is nothing more than extreme crony capitalism, Big Government rescuing Big Money. Here is how Michelle Malkin puts it: “Members of Congress who let themselves be bullied into [voting for the bailout] should be experiencing the biggest case of buyer’s remorse in U.S. history.”

Maybe Romney is having that experience. But there are few signs of it. This is what he told FOX News this week: “I hate the way TARP was administered, but I can tell you that we were on a precipice unlike anything we have known before in modern history with the potential of a complete collapse of our currency system and our financial system. Had we not taken action, you could have seen a real devastation.”

Yet Romney clearly knows his TARP support is a problem. He spends time in his new book, “No Apology: The Case for American Greatness,” explaining his position and making his case. Let’s take his key points one by one.

1) “Secretary [Hank] Paulson’s TARP prevented a systemic collapse of the national financial system.”

That is certainly the economic consensus, even among right-of-center economists and financial experts. This bit of analysis from Nicole Gelinas of the free-market Manhattan Institute is typical: “We were never going to escape this debacle without pumping massive amounts of taxpayer money into the financial system.”

There are objectors, of course. Stanford University economist John Taylor, for instance, argues that the TARP proposal itself incited a panic on Wall Street. But even many of these folks were in favor of government debt guarantees for banks and money market funds, as well as Federal Reserve liquidity measures. Having government do nothing was not a realistic option. And while many free-market economists have devised TARP alternatives since the fall of 2008, such proposals were hard to find at the moment of crisis or difficult to quickly implement.

2) “It was intended to prevent a run on virtually every bank and financial institution in the country.”

Or, in other words, TARP was about recapitalizing banks. But Americans thought it was more about unfreezing credit markets and keeping Wall Street lending to Main Street. So when Paulson called off the plan to buy troubled assets — the ones supposedly clogging up the system — and just injected capital, it looked like a bait-and-switch plan. Yet if the banks weren’t stabilized, lending would surely have come to a halt.

3) “But TARP as administered by Secretary Timothy Geithner was as poorly explained, poorly understood, poorly structured and poorly implemented as any legislation in recent history.”

This is confusing. Although it was under Geithner that TARP money was used for foreclosure mitigation, it was under Paulson that TARP shifted from an asset buying program to a capital injection program. And it was also under Paulson that TARP was used to bailout automakers and AIG. Has TARP become a slush fund? Sure, but both Republican Paulson and Democrat Geithner are to blame for that.

Bottom line: Doing nothing back in the fall of 2008 might have worked. It certainly would have negated years of moral hazard created by Washington’s Too Big To Fail approach toward the financial sector. But it would have been an amazingly high-risk proposition. That, especially with the banks now quickly repaying those billions in government bailouts. Even some early TARP critics have calmed down. The University of Chicago’s Luigi Zingales now admits TARP funds were “deployed with conditions not too far removed from market ones.”

Still, many conservatives will probably never see it that way. For them, TARP is a permanent, shining scarlet T on Romney. (They also don’t much like his health reforms in Massachusetts, nor his belief in man-made climate change.) But maybe as time passes and TARP doesn’t look quite as much like a money pit, maybe that letter won’t shine so brightly.


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When Mitt Romney takes a stand on an economic issue, I think most of America accepts that it is an informed one. This is an area where both Obama and McCain had zero credibility.

Romney’s support on all three issues you mention is qualified. He supports TARP, but not the way its been administered, let alone the idea that the money that has been repaid should be used for other pet projects of Democrats and Unions…

Mitt has admitted only minor human impact on climate change. He is not what anyone could call a believer in the green movement.

As for health care, he will have a lot of explaining to do, although the good news is his proposal IS dramatically different from Obama’s. The biggest issue, he says, is that we should not be creating a byway toward government administered health insurance, let alone government administered health care. The Federal Government should also not be involved, he says, although I think he would support deregulation of interstate limits at a federal level, which most Republicans do support. If anyone acts, it should be on a state level (where they don’t have unlimited budgets and will have to act with fiscal restraint.) Mitt also breaks up the problem into getting everyone insured and reducing the cost burden. In Massachusetts, they addressed part one, but not part two. His new book gives free market suggestions for solving part two. Finally, his approach would have cost nothing to the taxpayer. Democrats, who were essential to make the bill “bi-partisan”, demanded a few extra concessions that brought the bill to a 1.2% of state budget level. 98% of the legislature supported it, and a majority of Massachusetts residents still support it, something that cannot be said of ObamaCare.

RomneyCare is not bankrupting Massachusetts. Massachusetts liberals are bankrupting Massachusetts the same way California liberals have done in California. They demand things of government that government and taxpayers cannot and should not sustain.

Bottom line: Romney does have some explaining to do, but the facts line up in his favor. I will definitely vote for him in 2012, and encourage others to do the same!

I’m ok with Romney, but I’d prefer to vote for Mitch Daniels (Indiana Gov) in 2012.

Mitt Romney is the most plastic politician in America today. Over time he has had 3 or 4 different positions on several issues. The guy is fake.

No more bailouts!!!! The moral hazard is killing capitalism.

Posted by Austrian School | Report as abusive

Oh yeah and BTW, and RomneyCare IS bankrupting Massachusetts.

Jed Merrill, have you read the news lately?

Their governor is now resorting to price controls. This is what happens when central planning is tried by Republicans and Democrats!

Posted by Austrian School | Report as abusive

Mitt Romney is just a GWB with a nicer hairdo. If this is all the Rs have for 2012, then we’re in trouble. He’s not gonna let his boys on the Street fail.

Posted by Michael | Report as abusive