The successes and failures of TARP will likely be analyzed for years to come, as financial experts continue to examine the most effective ways to recover from a financial crisis like the looming one spurred by business closures and rising unemployment related to the COVID pandemic. Department of the Treasury. Financial Crisis, Investopedia.
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This incredible twisting of the facts, as well as the resulting loss of confidence in banks, caused tremendous harm to our economy and especially to the thousands of banks that had nothing to do with creating the financial crisis. My purpose here is not to relitigate whether Tarp was the right approach, but rather to point out the massive and disastrous communication failure related to Tarp on the part of government leaders — including members of Congress — and, of course, the media.
After offering up an unworkable program to buy troubled loans hence the name: the Troubled Asset Relief Program , the government, led by Treasury and the Federal Reserve, without warning called in the leaders of nine of our largest banks in October of and basically ordered them to take capital injections.
The CEOs were told that the purpose was to create a firewall against panic and also that their banks would be better positioned to buy any banks that were in trouble.
Uniformly, these CEOs responded that their banks were very well capitalized, doing fine and did not need nor want money from the government. Incredibly, there was no communication plan at the highest levels of government to explain this massive new program. Our leaders were at best naive about how this was going to play out. In response, officials at Treasury and the Fed created a new story line that the money was to increase lending, leading to congressional and media demands for banks to prove where exactly the increased lending was — an impossible task in the face of cratering loan demand.
Quickly, bankers were vilified, new restrictions were unilaterally applied to Tarp banks and the avalanche of new regulations that ultimately peaked with the Dodd-Frank Act began. The American Bankers Association tried — but was largely unsuccessful, I am afraid — to get the truth out against this tidal wave. We went on every TV program and talked to every reporter we could, wrote op-eds and white papers, and talked to members of Congress and the regulators.
I wrote the strongest letter of my career to then-Treasury Secretary Henry Paulson, pointing out the damage that was being done by the failure to forcefully counter this false narrative. We argued that banks were not the cause of the crisis; that banks did not ask for the Tarp investments and in fact were pressured to take them; that although there were a few possible exceptions among the big banks all the banks that took the money were, by the express requirements of Tarp, healthy banks — i.
Furthermore, while commentators routinely now say that no one could have predicted that there would be a profit for the government on the bank investments in Tarp, we did exactly that. Despite the dangers of doing so, we thought it was necessary to try to change the widely held and mistaken belief that this was a bailout.
Americans recognize the role TARP played in building this belief. The American people are wise. About the Author. John A. Page Contents.
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