On March 17th the Wall Street Journal reported that banks have repaid 99 per cent of the Trouble Asset Relief Program (TARP) money.  That is true, but somewhat misleading if you are trying to evaluate the success or failure of TARP.

The American Spectator reported some additional numbers.  The article points out that the banks have paid back 99 per cent of the money that the banks were given ($244 billion of the $245 billion including some profits that the Treasury Department gained). 

However, this is not the entire picture.  The article at the American Spectator points out:

“…This claim, while accurate, is still not helpful in assessing TARP’s effectiveness because, as former Congressional Oversight Panel members Pau Atkins, Mark McWatters, and Kenneth Troske argue in the Journal, “TARP was never where the real action was happening. In fact, other Fed and FDIC programs added another $2 trillion of taxpayer money at risk to the 19 stress-tested banks alone, on top of the $1.1 trillion of MBS purchased by the Fed. TARP is but one-eighth of that total.” Those numbers do not even include the Fed’s near-zero interest rate policy, which has allowed big banks to earn risk-free profits.”

Neil Barofsky, who is the outgoing Special Inspector General for TARP, explained that creating a safety net for large banks made it possible for those banks to take greater risks. 

Mr. Barofsky explained:

“Credit-rating firms are to giving these “too big to fail” institutions higher ratings based on the government’s implied guarantee, Mr. Barofsky said. As a result, he said, lenders “give those institutions access to debt at a price that does not fully account for the risks created by their behavior.”

“That effective government subsidy, he said, enables big profits and “allows the largest institutions to become even larger relative to the economy while materially disadvantaging smaller banks.” [Emphasis added.]”

It is nice that the banks who took TARP money have repaid most of it.  However, the damage done to the free market is going to take a long time to repair.