What's the Purpose of TARP?

by: Tom Brown

Portfolio.com’s Felix Salmon, objecting to my objection to Elizabeth Warren’s qualifications to run the TARP oversight panel, says the purpose of TARP is “to help real Americans, by giving them access to credit and by keeping them in their homes.”

Wrong! The purpose of the TARP is more basic. It’s supposed to prevent the country’s financial system from imploding. Which is to say, the TARP is a lender-rescue program, not a borrower-rescue program. That’s why the federal government has injected $350 billion of new capital into banks. That’s why the government now provides a blanket guarantee to bank deposits and money market funds. That’s why the government has become a regular buyer of commercial paper.

You may think those are wise uses of your tax dollars or foolish ones, but none of the moves have much to do with “keeping people in their homes.” In fact, it’s likely the financial system’s problems won’t be fixed for good until a certain number of unqualified borrowers (who helped start the whole mess, don’t forget) are back in the rental market where they belong, and their properties are disposed of. How bank giveaways to delinquent borrowers will help accomplish this I have no idea.

Salmon’s devotion to Elizabeth Warren is mystifying. As I say, the TARP is supposed to help save the financial system. Yet Warren isn’t just skeptical of the lending industry. She hates it. She believes credit providers target families with lending products “designed to trick them, trap them, and otherwise pick their pockets,” and describes the consumer lending industry as a “giant credit machine that wants to eat families alive.” (Blecch!) Warren’s entire career (a fully honorable one, I might add) has involved her laying into lenders every chance she gets.

There’s nothing the matter with that. But if the government enacts a program designed to revive the banking industry, it should install as chief watchdog of that program someone other than one of the industry’s sworn enemies. Given the body of her work, Warren’s criticism of the TARP’s implementation simply can’t be seen as fair-minded, and won’t be broadly seen as credible. Warren is hopelessly biased against the very industry the government is trying to help. Which is why—and I hope Felix Salmon finally gets this—she is a terrible, terrible pick for the job.