TARP strings

Posted Jan. 01, 2009, at 5:39 p.m.

Ensuring that taxpayers get the maximum bang for their buck on the $750 billion bank bailout must be a top priority for President Obama. From the original three-page version of the bailout bill proposed by Bush Treasury Secretary Hank Paulson, to the pork-laden version that eventually passed Congress, the plan has inspired something less than confidence from skeptics. Even more troubling than its slap-dash creation and ham-handed (pun acknowledged) revision is the grabby manner with which banks received this gift.

The Associated Press recently reported that the TARP — the Troubled Assets Relief Program — seems to have been viewed by banks more like a Christmas bonus than an emergency loan.

“After receiving billions in aid from U.S. taxpayers, the nation’s largest banks say they can’t track exactly how they’re spending it,” the AP reported, after contacting the 21 banks that have received $1 billion or more from the TARP. Several bank executives said they were “choosing not to disclose that,” as one put it. The AP also noted that some banks are unable to say how they have applied the money.

Assuming the emergency aid was indeed needed, and setting aside the outrage one might feel at the banks’ response to the AP’s questions, the key issue that remains is making the TARP work, and work well. The initial goal of the bailout was to assure that the troubled banks would survive into 2009. But for $750 billion, a more important outcome the government must insist on is that banks begin lending again.

One could argue that how a business applies unanticipated revenue should not be dictated by government. The bank best knows how to apply those funds to stay solvent. But the second goal, greasing up the credit market, requires some strings attached. Without benchmarks on the lending front, banks may merely shore up their weak sectors and ride out the poor economy. This outcome alone does not justify the huge taxpayer investment.

Maine’s congressional delegation is pledging to push for more accountability. “There is just no doubt we need to strengthen the oversight of this legislation, and it needs to be a high priority in the new Congress,” Sen. Olympia Snowe said. Sen. Susan Collins echoed that sentiment, saying: “The lack of transparency and accountability is just not acceptable.” Rep. Mike Michaud, who voted against the TARP, agrees that more oversight is essential.

With further releases of the TARP funds coming, strict accountability is both wise and achievable. Preserving as many current mortgagees as is reasonably possible is one benchmark. Responsible lending for residential housing purchases by middle-income earners and loans to allow small businesses to stay competitive are two other benchmarks.

The new president and Congress cannot view the TARP as a write-off. It must work, or far greater woes lie in our economic future.

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