- The Washington Times - Wednesday, December 9, 2009

An independent government watchdog gave the Treasury Department’s bank bailout mixed reviews in its year-end report, saying that the program was key in “stopping the panic” on Wall Street last year but that it failed to reach many of its goals.

The Congressional Oversight Panel for the Troubled Asset Relief Program, or TARP, said that 14 months after the $700 billion program’s creation, it is still too early to declare success or failure.

While the panel said it was impossible to disentangle TARP from other financial rescue efforts, the program — the federal government’s centerpiece response to the economic crisis — “played a critical role in renewing the flow of credit and preventing a more acute crisis.”

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“Although the governments response to the crisis was at first haphazard and uncertain, it eventually proved decisive enough to stop the panic and restore market confidence,” the 178-page report said.

Yet despite significant improvement in the financial markets, the broader economy is only beginning to recover from a deep recession. And TARPs impact on the underlying weaknesses in the financial system that led to last falls crisis, the report said, is far from clear.

Bank failures continue at a nearly unprecedented rate, with 149 shutting down between Jan. 1, 2008, and Nov. 30, 2009. The situation may worsen, the panel says, as deep-seated problems in the commercial real estate sector inflict further damage on small and midsized banks.

More than 2 million families also have lost their homes to foreclosure since the start of this crisis.

“It appears that the TARPs foreclosure mitigation programs have not yet achieved the scope, scale, and permanence necessary to address the crisis,” the report said.

The panel also found that TARP created “an implicit guarantee for major financial institutions that distorts pricing for capital and encourages excessive risk-taking.”

“Unwinding this guarantee poses a difficult long-term challenge,” said the report, completed under direction of panel Chairwoman Elizabeth Warren, a Harvard law professor.

The panel during the past year has not shied from criticizing Treasury’s handling of TARP, particularly the controversial loans made to Detroit automakers General Motors and Chrysler.

TARP, proposed by the administration of President George W. Bush and passed by Congress last fall, was designed to help avoid a catastrophic meltdown of the economy by offering financial institutions taxpayer-funded loans.

While the program was a key element of the federal governments response to the financial crisis, it was only one part of a multipronged approach. The Federal Deposit Insurance Corp. and the Federal Reserve undertook major initiatives aimed at bolstering financial stability, as did many foreign governments.

Congress last winter also enacted a $787 billion economic stimulus package that helped ease an shaky economy.

The Treasury Department recently announced that the cost of the taxpayer-financed bank bailout will be about $200 billion less than projected, thanks to Wall Street’s paying back the loans at a faster rate than expected on the heels of a gradually improving economy. Treasury Secretary Timothy F. Geithner said Wednesday that he was extending his financial bailout authority to October 2010. TARP was set to expire at the end of the month, but the law allowed for a nine-month extension if Treasury provided a justification to Congress.

Mr. Geithner is scheduled to testify Thursday on Capitol Hill.

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