Perception: The Troubled Assets Relief Program [TARP], created in October 2008 at the height of the financial crisis, was a disaster and cost the taxpayers $700 billion.
Reality: Out of the $700 billion authorized, only $410 billion was used. All but $19 billion of that amount has been recuperated. TARP basically worked as intended.
The economist Robert Samuelson examines how and why the TARP Federal program cost much less than initially feared. Key points:
- TARP invested $245 billion in banks [99% recovered].
- TARP invested $165 billion in other programs.
- Perception remains that TARP creates a problem economists refer to as a moral hazard.
- Moral hazard defined – The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.
The entire Samuelson column is copied at end of post.