Looking back, the housing industry is totally Scrooged

Looking back, the housing industry is totally Scrooged

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COP and Treasury spar over TARP's final verdict

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The Congressional Oversight Panel gave few compliments in its final report on the Troubled Asset Relief Program, and while a Treasury Department official didn't expect many, he said TARP did what it was intended to do. In October 2008, the Treasury launched the $700 billion bailout program, buying preferred stock and toxic holdings such as residential mortgage-backed securities from the nation's largest financial firms. The Congressional Budget Office estimates the program will cost taxpayers roughly $25 billion, "an enormous sum," COP said in its report but down significantly from the $356 billion the CBO initially estimated. "It is now clear that, although America has endured a wrenching recession, it has not experienced a second Great Depression," COP said. "The TARP does not deserve full credit for this outcome, but it provided critical support to markets at a moment of profound uncertainty." From there, COP pointed to a variety of areas where TARP let down the very taxpayers it was built to protect. Much of the cost reduction comes from the underwhelming performances of its foreclosure mitigation programs. Indeed, the Home Affordable Modification Program, the Federal Housing Administration's Short Refi program, and the Hardest Hit Fund were scheduled to cost $45.6 billion, but the CBO now estimates these programs will cost $12 billion. That's if they survive efforts to terminate them immediately by Republican lawmakers. Lower costs and even the problems in these programs obscure the real risk the government took in 2008. At one point, COP pointed out, the federal government guaranteed or insured $4.4 trillion in face value of financial assets. And going forward, the fact that the government bailed out the largest firms clears these companies to take the same risks in the future. But Assistant Treasury Secretary Tim Massad said in a conference call with reporters that the program was a success, and concerns over "too big to fail" are wrong. "Where we are today shows that the program by any reasonable objective measure was a success. It clearly wasn't TARP alone. There were a number of steps the government took," Massad said. "The strategy worked. We broke the back of the panic. We stabilized the system." COP pointed out in its report that the program's "stigma" very well could turn into its legacy, but in fact it criticized the Treasury's implementation of the program for making this stigma worse. "For example, many senior managers of TARP-recipient banks maintained their jobs and their high salaries, and although shareholders suffered dilution of their stock, they were not wiped out," COP said. "To the public, this may appear to be evidence that Wall Street banks and bankers can retain their profits in boom years but shift their losses to taxpayers during a bust – an arrangement that undermines the market discipline necessary to a free economy." Still, it might be fairer to align TARP with the broader and far-reaching Dodd-Frank Act. Massad vowed that because of these reforms, taxpayers will not have to stomach such a program again. "If any company thinks we are going to provide assistance after conducting these same sort of behaviors in the future, they are simply wrong," Massad said. Write to Jon Prior. Follow him on Twitter: @JonAPrior

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