Kudlow on TARP

Larry Kudlow’s new piece at NRO, a reaction to the TARP Inspector General’s report, is a must-read:

The IG’s report also notes that what started last October as a single-purpose $750 billion effort to buy toxic securities has morphed into twelve separate programs that cover up to $3 trillion in direct spending, loans, and loan guarantees. In other words, TARP is nearly equal in size to the entire federal budget.

Now, Geithner & Co. has said very little about this. Even in yesterday’s TARP oversight hearing, very little was said about the Barofsky critique. That’s too bad, because this is a crucial area of investigation. TARP is badly in need of reform — or maybe better yet, badly in need of termination.

Think about this: TARP, which is now linked to substantial criminal activity, has ballooned to the size of a second federal budget and represents the biggest government-directed intrusion into the economy in history — vastly bigger than the New Deal. And not only is there TARP for banks, insurance companies, and non-bank financial institutions, but also for GM, Chrysler, and various auto suppliers, and perhaps soon enough for credit cards, newspapers, and other sectors of the economy.

This is why I believe the era of democratic free-market capitalism is coming to an end. It is being replaced by state-directed corporatism on a grand scale. This is central planning that goes way beyond the American tradition. (emphasis added)

Obama supporters can blame Bush for all of TARP’s problems if they so choose, but Senate and House Democrats openly supported the plan and encouraged its implementation ASAP. President-elect Obama’s transition team repeatedly announced support for expanded Federal government bailouts, specifically with respect to the auto industry and TARP II. And during its first 100 days, the Obama Administration has only talked more government bailouts and industry control, not less.

For the record, I agreed with the need for the first TARP cash infusion into banks in late September/early October 2008, because at the time there was tremendous concern, backed by what appeared to be solid evidence, that our major banks did not have the liquidity necessary to continue lines of credit. If short-term loans or lines of credit had in fact suddenly become unavailable for American businesses, we would have been in big trouble.

Opponents of TARP have continually argued that the amount of money involved, combined with the potential for both governmental and private sector abuse, meant that TARP was much more of a Pandora’s Box than a panacea. Right now, it seems that their criticism was right on the money.

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