Time to End the TARP Bailout Program #tcot #ofm

by Stuart M. Butler, Ph.D., Heritage Foundation: Last week the Bush Administration tried to find ways to use the funds available in the Troubled Assets Relief Program (TARP) to bail out the Detroit automobile companies. That decision is just the latest of weekly, and sometimes daily, Administration reinterpretations of the TARP program's purposes. And no doubt the incoming Administration will continue this creativity and TARP will increasingly become a White House fund for politically sensitive companies.

With $15 billion of TARP funds still immediately available, and another $350 billion available if congressional action does not block access to the money, it is time to end this program by canceling further Treasury authority to allocate funds. . . . The problem now is that the Treasury has . . . embarked on a troubling pattern of potentially harmful ad hoc policymaking and mission creep. A major example of this was Treasury Secretary Henry Paulson's announcement on Nov. 12 to suspend the original purpose of TARP and to use flexibility granted under the law to explore a wide range of alternative uses of the funds . . . . This step confused markets, reintroduced uncertainty into the pricing of mortgage-backed securities, and triggered a lobbying frenzy for ever-more "flexible" uses of the TARP funds.

The Bush Administration's decision to consider responding with TARP funds to Congress's refusal to bail out the Detroit automobile companies underscores how far the Treasury has reinterpreted the mission of TARP. The only way to prevent further misuse of the program is to end it. . . . TARP Is Not the Cure for Future Problems The first institutional line of defense against these dangers, however, should be the Federal Reserve Board under its wide, existing powers, not the Treasury using TARP funds in ways not intended by Congress. While many of the Fed's actions in recent weeks have been disconcerting, the Fed is still the appropriate institution to address short-term dislocation in the financial system. Moreover, it is insulated from the political and lobbying pressures that necessarily ensnare the Treasury and the White House. If steps turn out to be needed beyond appropriate action by the Fed, Congress should rapidly consider what action is needed--as it did with TARP. And if in the future Congress needs to give the Treasury new powers to deal with another potentially catastrophic breakdown in financial markets, it should include much tighter limits on Treasury's discretionary authority than it did when it created TARP. . . . [Full Story]

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