The Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) seems as frustrated with TARP as middle-class Americans. It’s recently released its Quarterly Report to Congress has concluded:
Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.
The report concluded that the costs of TARP “will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, or five, or ten years’ time.”
- The “too big to fail” institutions contributing to the crisis are now even larger.
- The incentive for financial institutions to take reckless risks because of the belief the government will bail them out has only been reinforced by TARP.
- There has been little change in the fundamental culture of large compensation and bonuses on Wall Street.
- The effects of the housing bubble and the stabilization of home mortgages was not fixed, as foreclosures continue as before.
- The explicit t goal of the Capital Purchase Program (“CPP”) was to increase financing to U.S. businesses and consumers, lending continues to decrease, month after month, and the TARP program designed specifically to address small-business lending — announced in March 2009 — has still not been implemented by Treasury.
So far TARP has manage to accomplish the following:
- Increase US indebtedness.
- Increase the wealth of executives at large financial institutions.
- Decrease citzen confidence in the Federal Government.
- Decrease confidence in the Federal Reserve and the US banking system.
- Decreased economic opportunity for average Americans by focusing resources on large financial institutions.
What Does SIGTARP Recommend?
SIGTARP offers some hope that reform can still come from this program.
- It appears that the Treasury Department is at least considering more transparency, something that was originally recommended but has never been implemented. Transparency is necessary for a people to hold the expenditures of public servants accountable. Without transparency it is generally assumed that corruption between the Treasury Department and Financial Institutions, with the knowledge of Congress, is taking place.
- Elimination of conflicts of interest can still be implemented using TARP funds as leverage, but meaningful reforms have not yet taken place.
- The Treasury Department needs to take more active oversight of companies it bails out and the use of funds it provides. It just handed AIG money without knowing any details and this came back to bite them.
In short, the government has failed to act on basic recommendations of SIGTARP that could lead to needed reforms of the financial sector. It is a missed opportunity, but it is still not too late to implement these reforms and pull the U.S. economy out of the sewer the financial institutions are sending it down.
Of course, TARP itself is not a solution to the problems of job loss caused by an unlevel economic playing field that the government could do much to improve, as discussed in my previous blog article. However, the financial sector is part of the US infrastructure that can either be a strong girder or a rotting timber for those people engaged in sound business. Changes in corporate tax policies, personal income taxes, taxes on imports, and tort reform all need to be made to create a climate more favorable to production of goods in the United States, even if global wages may not be leveled. U.S. ingenuity and efficiency can still offset large wage discrepancies if the government would simply allow more fair competition to take place in the United States.