The Troubled Asset Relief Program (TARP) was created to respond to a financial panic. Some might say that it was created in panic. Congress appropriated a huge sum of money, gave the Secretary of the Treasury enormous latitude to spend the money, and provided ambiguous, and, some might say, contradictory direction on the goals and objectives of TARP. Treasury, in turn, gave clear guidance on how it proposed to use the money, only to shift directions within weeks. Throughout its life, the TARP program was controversial. It was misunderstood by the public and misconstrued by the media.
To fully understand TARP, one should follow the advice Mark Felt (Deep Throat) purportedly gave to Woodward and Bernstein, “follow the money.” This money trail reveals that TARP was merely one component of a much larger governmental intervention that was remarkably similar to governmental responses to past banking failures.
Part I of the article describes the government’s actions in the financial crisis of 2008, beginning with the collapse of Bear Stearns. Part II follows the money with respect to both TARP and non-TARP funds and assesses those interventions. Part III contains a brief summary of past banking failures in the U.S. It also discusses how fundamental changes in the banking business model, coupled with significant industry consolidation, will have consequences for the inevitable—future bank failures. The Article concludes with some observations on what regulators must address to reduce the consequences of future failures.