Barofsky: TARP Was a ‘Failure,’ Didn’t Help Main Street

Wednesday, 22 Aug 2012 11:42 AM

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The Troubled Asset Relief Program (TARP) stabilized the banking sector but failed in its goal to channel money to ordinary Americans and get the economy going again, said Neil Barofsky, TARP’s former inspector general.

TARP was approved by Congress in late 2008 and was originally authorized to expend $700 billion bailing out banks and other troubled entities.

Even though it never spent that much, a good chunk of the money went to Wall Street Banks in hopes of stabilizing the financial sector and encouraging lending after credit tightened during the 2008 financial crisis.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

While TARP succeeded in yanking the country away from an abyss, it failed in its longer-term goal of spurring more lasting financial recovery and keep Americans in their homes.

“TARP was a failure because it was supposed to do more than just shovel money into the banks,” says Neil Barofsky, former TARP inspector general, told CNBC.

“TARP was supposed to help Main Street. The money was supposed to go from the banks and go back into the economy to restore lending. That was the stated goal. Preserving home ownership was a fundamental reason of why TARP gets passed.

“That housing policy stated that it was going to help up to 4 million people. It didn’t do that.”

TARP has cost the country about $60 billion so far though bigger banks have largely paid back what they borrowed including interest.

Insurance giant American International Group (AIG) and automakers tapped TARP money as well.

Taxpayers, meanwhile, are still owed more than $30 billion TARP money used to bail out AIG, a separate report shows, according to The Wall Street Journal

The government originally spent $161 billion bailing out AIG via TARP money and other sources after the insurer backed too many sour mortgages.

Some have faith the insurer will pay back taxpayers.

“AIG has taken significant action since the crisis — working with Treasury and the Federal Reserve — to restructure, reduce risk and streamline its operations to focus on its core insurance business,” said Treasury spokesman Matt Anderson, The Journal reported.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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