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.