TARP Director Says Controversial Program Prevented Disaster
From 2007 to 2009 the U.S. lost 8.8 million jobs and $19.2 trillion in household wealth. As the country faced an unprecedented economic crisis, President George W. Bush signed into law the controversial Troubled Asset Relief Program (TARP). Today Assistant Secretary for Financial Stability and TARP overseer Timothy Massad says TARP has done its job and saved the U.S. from a second Great Depression.
Massad spoke at UT on Wednesday, April 23 in a lecture titled “Confronting the Financial Crisis: How the Government Mobilized to Prevent a Second Great Depression.” The talk was sponsored by the McCombs School's Department of Business, Government and Society and the Bates Family Foundation.
Massad asserted that strong bipartisan leadership led to the creation of TARP and effectively saved a nation on the brink of disaster.
“I have the honor of overseeing one of the most unpopular programs,” Massad said. “Unpopular, but effective. Born out of the enormous circumstances our government faced in the fall of 2008. Risks were huge, pressure was great, and there was no standard playbook to follow.”
The economic circumstances that year, he said, were so dire that President Bush took actions against his political philosophy. Massad said Bush later credited TARP with saving the economy.
Massad called the collapse of Lehman Brothers the match that lit the fire—leaving every financial institution at risk. During that time, he said, there were the initial signs of a run on the system, such as when he overheard financial experts discuss withdrawing as much as possible from ATM machines in case they wouldn’t work the next day. Such a run would have a quickly growing velocity and would be much more dramatic then the first Great Depression, he said. Now all it takes is mouse clicks and wire transfers for a financial collapse to be instigated.
In order to stave off a dramatic collapse in 2008, Massad said the government took five steps:
(1) Stabilized the banking sector.
(2) Took action to mobilize secondary loan groups.
(3) Prevented the failure of AIG, which Massad called, “one of TARP’s most unpopular and difficult decisions.”
(4) Prevented collapse of the American motor industry.
(5) Took action to stabilize the housing market.
When Congress initially approved TARP it was a $7 billion package. Now, Massad said the program has brought money back into the government.
“TARP was one of the most effective and least expensive crisis-response plans,” Massad said. “Its effects were not fair, but I believe that because we acted forcefully with efforts from both Republicans and Democrats in the government, the damage was not as great and the costs not as high.”
To see data and charts on financial recovery from the U.S. Department of Treasury that Massad shared during his presentation, click here.