TARP was initially proposed and passed during the Bush administration; ironically, TARP is the cause of much of the anger that led to yesterday's stunning defeat for Democrats and "second chance" for Republicans. Sure, if he economy had come roaring back, things would've been different yesterday; but employment is still in the tank – and bank bonuses are setting new records.
TARP (Troubled Asset Relief Program) is easy to hate; even its proponents agree that bailing out feckless greedy bankers (and car companies) was unfair. It was passed under the pretext that it was need to avoid a depression and the pretense that it would buy up troubled mortgage assets – hence the name – and protect both the housing market and the banks, which had made spectacularly bad bets. When the banks balked at having to admit how little their mortgage portfolios were worth, they were bailed out directly. Borrowers lost the leverage they might have had to negotiate principal reductions; the housing market tanked anyway; but the big banks were kept whole. In fact "non-bank" (meaning unregulated)banks were allowed to become banks to qualify for their own bailouts. The captains of the economy who'd run full tilt into the iceberg were rescued; the crew and passengers were left to swim in the chilly water.
OK. That's just what you'd expect from Republicans, right? (full disclosure: I usually vote Republican) Certainly "change you can believe in" would include ending welfare for the wealthy and bailouts for bankers, wouldn't it? But, incredibly, it didn't.
Obama made TARP his own. He appointed Tim Geithner as Treasury Secretary. Geithner, as President of the NY Fed was responsible not only for lax supervision prior to the collapse but was also an architect of TARP and previous "rescues" of failing banks. Obama reappointed Ben Bernanke as Federal Reserve Chairman despite the Fed's failures leading up to and following the collapse. The teapot began to simmer.
The banks were bailed out enough to pay bonuses but still didn't make loans. We the people had decided to fix our own balance sheets so weren't buying or borrowing as much as before anyway; businesses don't want to borrow (or spend money they already have) to build capacity absent consumer demand; maybe we didn't need as many (or as large) banks. But the government, this time the Obama government, and the Fed rode to the rescue of the banks who weren't making loans. Even if we the people stubbornly refused to borrow and spend, the government is now doing both on our behalf. Banks get low interest money from the Fed; they lend it to the government by buying government bonds; and bank profits set new records. The teapot began to whistle.
Just in case the banks are afraid that government bonds might be too risky because interest rates could go up (and bond prices down), Bernanke and the Fed announced QE2 today; it might as well be called TARP2 or at least TARP Lite. Dollars are being printed to buy federal bonds so that the government can borrow even more on our behalf without tanking the value of the US bonds the banks already have. Talk about ignoring the election and adding insult to injury. Wow.
The Tea Party didn't cause yesterday's debacle for Democrats; the Tea Parties are a symptom of people's anger just as the original tea dump in Boston Harbor was. It seems that government is being run by special interests for the benefit of those special interests – no matter which party is in control. Angry people vote against whichever party is in at the moment. Happened two years ago; just happened yesterday.
Will Republicans use their second chance well? Will Democrats come to their senses and try to outdo Republicans as the party of Main Street? Let's hope so.