President Obama faces a year-end deadline and no politically appealing choices for deciding whether to extend a controversial, $700 billion financial bailout program.
With the clock ticking down on the Troubled Asset Relief Program, or TARP, the administration seems unsure — sending out conflicting messages and trial balloons.
“We are working to put the TARP out of its misery,” Treasury Secretary Tim Geithner told lawmakers last week. And no one would be happier than I am to see that program terminated and unwound.”
TARP was launched by President George W. Bush’s administration. It was aimed at stabilizing the financial sector in the panic of 2008. Obama inherited TARP and diversified it to include an automakers bailout and other features.
But the program has been mired in scandal nearly since its inception, as some banks and other institutions receiving the taxpayer money were exposed for doling out lavish executive bonuses and failing to provide loans and other services.
TARP quickly become a lightning rod for popular discontent with the Washington habit of throwing taxpayer money at a problem and failing to provide sufficient oversight.
There is currently about $142 billion in unallocated TARP funds, plus some $80 billion in payback and interest from banks. Unnamed administration officials told ABC News and the Washington Post that the White House wants to extend the program, but is struggling with how to justify it.
“The problem you run into now is you’ve got this fund around Washington, and anytime there’s loose change around Washington, people have designs on it,” said Sen. John Thune, a South Dakota Republican. “My concern is that it’s going to turn into a political slush fund that will be used for all kinds of other things.”
Thune, who voted for the original TARP program, introduced a bill last week to end it — saying TARP has done enough.
Geithner has declined to commit either way on TARP, claiming the matter is under consideration. Economists are divided on TARP, though many say the federal spending held off greater catastrophe.
“It is easy to imagine how much the Treasury and the Administration would like to extend as long as possible the power and independent capacity they enjoy through the operation of TARP,” said Alex Pollock, a former banker and resident fellow at the American Enterprise Institute. “But in my view, it is time to observe its target expiration date of December 31.”
Mark Zandi, chief economist and cofounder of Moody’s Economy.com, said TARP funding aided significantly in bolstering the banking and auto industries, but hasn’t done enough to stave off home foreclosure.
“When all is said and done, TARP will cost taxpayers a substantial sum of money, but not nearly as much as most taxpayers and policymakers thought when the plan was conceived,” Zandi said.
The political calendar complicates the decision for Obama. With Democrats heading into what portends to be a tough election year, the party can’t afford to draw more ire form voters for profligacy.
Dedicating a portion of the remaining TARP funds to pay down national debt could mitigate the risk, but with unemployment at 10.2 percent and economic recovery slow, any move by Obama to extend TARP into next year could be a tough sell.
