Timothy Massad has what might be one of the most unenviable tasks in Washington: winding down the Troubled Asset Relief Program (TARP), which cemented “bailout” as a pejorative and drove incumbents from office.
But Massad, who has served as Treasury’s acting assistant secretary for financial stability since last September, said the backlash to TARP isn’t evident in his daily interactions.
Defending TARP has become a bit easier due to the recent run of favorable news for the program. Once skewered as a $700 billion boondoggle, the Congressional Budget Office now pegs the cost of the program to be as little as $19 billion to the taxpayer. The Treasury could make back every dollar it spent bailing out American International Group (AIG), and Massad recently oversaw the government’s May exit from Chrysler six years ahead of schedule and at the relatively low cost of less than $2 billion.
In March, Treasury announced the portion of TARP devoted to banks — the most notorious of the bailouts — had turned a profit of up to $20 billion for taxpayers.
“I think history will look upon this program favorably,” Massad told The Hill in a Wednesday interview in his office.
But beyond the price tag and the speed with which bailout funds were repaid, Massad credits TARP as a success for averting “catastrophe.”
“The crisis was so severe and so threatening, you had to sort of throw everything at it. That’s what we did, and that’s why it worked,” he said.
But Massad is careful not to toot TARP’s horn too loudly, given that the economy is still struggling to recover from the crisis.
“When I say ‘success,’ I’m only referring to success in stopping the panic and stabilizing the system,” he said. “The accomplishments of TARP are very important, but I think it’s more important to remember that we still have work to do to get this economy back to where it needs to be.”
TARP has not enjoyed good news across the board. The Congressional Oversight Panel created to monitor TARP gave a mixed review of the program in its final report in March.
While crediting the program for providing “critical support” during the financial crisis, it also warned that the extreme government intervention might have ingrained a moral hazard into large companies that now believe Uncle Sam will rescue them in hard times.
Massad disputes that assertion and says the bailouts were necessary because the government lacked the tools to handle the situation. Reforms included in the Dodd-Frank financial reform law — including giving regulators the ability to wind down in an orderly fashion ailing financial institutions — are intended to fix that, he said.
“Any time the government provides assistance to a private company, you have a moral hazard problem. … But I don’t think we had any choice” he said. “It therefore behooves us to address those problems so we don’t get in that situation again, and I think that’s what the Congress has done through the passage of Dodd-Frank.”
Perhaps the biggest disappointment in TARP has been its programs designed to help struggling homeowners, including the flagship effort, the Home Affordable Modification Program (HAMP).
Originally envisioned to help 3 to 4 million homeowners, HAMP has thus far resulted in just 700,000 permanent modifications. In a May survey of housing counselors, the Government Accountability Office found three-quarters had negative experiences with HAMP, with common complaints of lost paperwork or missed deadlines by HAMP administrators.
House Republicans have approved legislation eliminating the program, and when Massad appeared at a confirmation hearing before the Senate Banking Committee, ranking member Richard Shelby (R-Ala.) had a simple question: “Why has HAMP failed to live up to expectations?”
But Massad — who was ultimately approved by the panel in a unanimous voice vote and awaits consideration by the full Senate — maintains “our programs have helped alleviate some of the suffering.”
“We are making a difference,” he said, pointing out the deep housing crisis that preceded TARP, and the fact that the government cannot force the private sector to participate in the programs.
And while the housing program’s numbers might be underwhelming, Massad contends that the mortgage modification standards in TARP have paved the way for further modifications in the private sector without the government’s help.
“Before our program there were very few modifications happening of any kind,” he said. “You have to look at its direct effect and its indirect effect.”
Still, he concedes, “it’s not enough. We’re continuing to try to do more.”
Massad actually came to Treasury to help administer TARP after helping the watchdog overseeing it. The Treasury brought him on board in May 2009 as chief counsel for the office of financial stability after he spent six weeks assisting the Congressional Oversight Panel in picking TARP apart.
In December 2008, Massad left his private practice as a partner specializing in corporate law at the New York firm Cravath, Swaine & Moore LLP to join COP as a pro bono legal adviser, breaking down the legal terms of TARP’s investments.
“They didn’t have any staff, and I knew one of the members on the panel [the AFL-CIO’s Damon Silvers], and they needed help in studying the TARP investments,” he said. “That’s how I first became intimately familiar with the program.”
Shortly after returning to private practice in February 2009, Treasury called him and asked him to come on as chief counsel.
TARP’s future is a dwindling one. Massad’s work now primarily consists of steering the government’s exit from a number of bailout investments, while continuing to administer the housing relief programs, most of which will accept new applicants through 2012.
“Our TARP authority to do new things, if you will, has expired,” he said.
But while TARP might be winding down, Massad isn’t just yet. He said he isn’t sure what he will do once the program comes to a close, because he’s been too busy administering to think about it.
“I think I’m just going to want to take a break,” he said. “It’s been pretty demanding.”