A sentence to ponder: "Say what you want about TARP — it was clearly unpopular — but in retrospect, it is hard to argue that it did not keep the economy from going off a cliff."
This gem comes from Mr. Andrew Ross Sorkin and a Dealbook column about troubles in Europe and their inability to get banking woes under control. But I do not find it hard to argue that TARP did not keep the economy from going off a cliff (just hard to avoid double negatives):
1) Can you prove that the stock market would have fallen further than it did in the absence of TARP? Markets didn't stop falling until March of 2009 and their rebound hasn't been so much the capital injections, but rather cheap Fed money generating speculative profits (not inherently bad) for financial institution balance sheets.
2) Can you prove that the economy would be any worse today if Lehman was not the only bank that had to go through bankruptcy. We've managed fine with Wachovia being absorbed into Wells Fargo. Did we need to keep Citi alive in its current (and larger) form?
3) I can't prove that we would have been fine without TARP, but can you prove that with TARP the banking system would be any worse off than it is today? TARP made the banks bigger and more interconnected with the system, the opposite of what an invisible hand would have done.
Of course, perhaps we would have gone off a cliff without TARP... now prove that would have been worse than staying on the edge of the cliff. It seems that the best way for populists to have gotten their pound of flesh would have been seeing all those big banks file for bankruptcy, get split into pieces, have the bad players flushed out of the system, and the chance to build new from a cleaner foundation.
Its not like that could have frozen credit much more than it did. That seems hard to argue with.