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Sunday, January 18, 2009

No New Year's Resolution for the TARP

In case you missed it, the Senate voted to release (or, rather, to not block the release of) the remaining $350 billion of funds from the TARP program. You remember the TARP, right? This was the money that was requested in order to buy mortgage backed securities from financial institutions, allowing them to avoid the disastrous consequences of their own irresponsible actions.

The consensus from both sides of the political aisle seems to be that the first portion of the money has been squandered. We have poured money into several financial institutions who seem to have done everything with it except lend. Acquisitions have been undertaken, dividends have been paid, and balance sheets shored up, but benefits have yet to flow to the larger economy. With so little to show for such a large expenditure, I am left scratching my head as to why we are doubling down on the TARP to the tune of another $350 billion.

It is worthwhile to think back to September and the initial response to the financial crisis. At that time, Treasury Secretary Henry Paulson circulated a now infamous 3-page proposal for legislation in response to the situation. Lawmakers promptly rejected the proposal as too broad, with too little oversight. They felt that granting the Secretary such a tremendous amount of power was dangerous, and probably not without reason.

Instead, Congress proposed and quickly passed their own response to the crisis. The Emergency Economic Stabilization Act of 2008 (EESA) dwarfed Paulson's three little pages, as if legislative quality and effectiveness is measured in reams of paper used. Among other things, EESA spawned the TARP and the Congressional Oversight Panel to monitor the TARP (more on this in the future). It also, however, included a provision to exempt from an excise tax, certain children's wooden toy practice arrows (I am not making this up). This is emblematic of how the Congress functions, or malfunctions if you will. Despite this legislative action, the economy continues to falter.

So a three page response was insufficient in theory, while the legislation that we ended up with has failed in practice.

How then, should we proceed? A change in course would seem to be in order. To that end, House Finance Chair Barney Frank (D-MA) introduced HR 384 which is described on house.gov as a resolution,
to reform the Troubled Assets Relief Program of the Secretary of the Treasury and ensure accountability under such Program
The Senate's vote, though, all but insures the needed reforms will not take place. Senate Banking Chair Chris Dodd (D-CT) has indicated that he will not introduce legislation similar to that of Franks. This refusal is all the more saddening since it comes from the Senate. The body, that with its longer terms and smaller size, should be most willing to assert itself in the face of what in Washington seemed to be a foregone conclusion.

Given the inability or unwillingness of our Congress to stand up to our President over the last eight years, a condition that Democrats especially have bemoaned, I am surprised that this is the best we can do. Regardless, we are on the hook for the remaining money and at this point one can only hope that the Congressional Democrats' faith in Obama to spend this money more wisely than Bush is not misplaced. Though on the face of it, I can't see why this would be the case.

Over at house.gov you can find a summary of activity on the House floor. The entry for Thursday, January 15th includes this item:
2:04 P.M. -
Committee of the Whole House on the state of the Union rises leaving H.R. 384 as unfinished business

The matter of fact tone of this simple note belies the continued trouble that it portends. The nation may never get back to business until members of Congress fulfill their obligation and tackle the unfinished business of governing.


1 comment:

Steve said...

On this Inaugaration Day the world awaits a new direction, not only financially, but ethically (per the financial scandals we have been subjected to in the last six months). Will the change occur, or will we be disappointed and idealistically disillusioned? By "direction" we envision large, world-altering changes in which we feel confidence in our institutions and leaders. We cannot help but hope we are on the right track. Things are probably going to get worse before they get better, if they get better; but we have to hope. The trouble is the economy seems to have a life of its own and we have to adapt to it, not it adapt to us. If this means large philosophical changes in our government, then it will just have to be; if it does not mean any changes, then it will be. Congress is no better or worse than the nation (except they are lawyers and not the "representative man" our founders had in mind. If our Constitution is out-dated (as I suspect it is)then it must be changed. What this change will involve will be difficult, arduous, and, historically, involve a revolution of some sort. Whether we can endure revolution without dragging in the name of religion is to be hoped for, but may be impossible. We can't go back to the old ways of Wall Steet tycoons,
and hedge-fund hocus-pocus. The institutions will require transparancy and and regulation, not Ronald Reagan idealism which began this whole bubble that has collapsed of its own inadequacy.