Most Americans have a sense TARP was a badly managed program that bailed out "fat cat" bankers at the expense of U.S. taxpayers. Well, it's even worse than you think, according to Neil Barofsky, former special inspector general for TARP (SIGTARP).
I'm not sure that I agree with a lot that Barofsky has to say here about TARP. I was a Fed economist at the time, and TARP and other programs were sold as necessary evils to prevent the collapse of the financial sector. They were not to save the financial sector for its own sake, but to save the rest of the economy, which relied on the existence of a functioning financial sector. Saving Wall Street was the same as saving Main Street. Plus, as repugnant as it was to bail out bankers who were in trouble because of their own decisions, many bankers and others in the financial sector were innocent victims.
What made me leery was the creation of a fund that had little in the way of the usual checks to help ensure that it would be spent appropriately. But there was no time for such niceties as the Fed and Treasury were flying by the seat of their pants and events were moving very fast. As far as any Fed involvement, I was confident that its decisionmakers would do everything above board. In thinking that, however, I only had in mind the Board of Governors and, in particular, Ben Bernanke. I don't always agree with the policies that Bernanke proposes and implements, but I do not doubt his integrity. From what I now know about Tim Geithner, on the other hand, I think my faith in the overall integrity of the Fed was misplaced.
Given all of that, I still don't agree that TARP, as originally intended, was bad policy. Yes, it was far from perfect and some banks got sweetheart deals. But it was a necessary part of stopping the financial crisis from tipping the economy into a deep dark pit. To me, the was that it was not restricted to propping up the financial sector during the crisis of the fall of 2008, and became a slush fund for sweetheart bailouts to politically favored industries and their unions (yes, I'm talking about you, Chrysler and GM) or as so-called stimulus. And even when it came to propping up banks, much of Tarp spending after December 2008 or so was probably unnecessary for saving the economy as a whole. Orderly bankruptcy and liquidation of some banks under existing laws and procedures would have been better and less corrupt. Note that I said "under existing laws and procedures" rather than the completely made up powers and theft that occurred as part of the Chrysler and GM bailouts.