By Jared Allen and Silla Brush - 09/22/09 10:45 AM EDT
As the economy begins to claw back from the worst of the crisis, freshman members, House leaders and the Obama administration are all beginning to take credit for stabilizing the economy, particularly as some bailed-out firms repay the government.
Republicans continue their full-on assault against the bailout efforts, particularly the $787 billion stimulus bill. Meanwhile, some Democrats remain skittish about proclaiming victory with a 9.7 percent unemployment rate expected to rise as Americans continue to lose jobs.
“We’ve gotten $70 billion back; my understanding is that we’re going to see $20 billion from Bank of America soon, and it sounds like the profit on that has been 17 percent, which is pretty tidy,” said Rep. Jim Himes (Conn.), a freshman Democrat and former Wall Street executive. “It’s a little early to declare victory, but I think the Democrats can say we stepped up and did an unpopular thing last Congress because it was necessary.”
House Majority Leader Steny Hoyer (D-Md.) underscored that the government had “essentially made money” from the banks that had repaid funds. He emphasized the need to create jobs from bailout funds.
Down Pennsylvania Avenue, senior Obama administration officials are talking about the government’s rescue efforts entering a “new phase” of recovery with government programs winding down.
“The recovery program, the fiscal stimulus and the financial stress tests have served to quell panic, drive private capital-raising and ultimately pull us out of the vicious cycle,” Larry Summers, President Barack Obama’s top economic adviser, said last week. “Today, instead of money going into financial institutions, we’re seeing money coming back.”
The Troubled Asset Relief Program (TARP), as the $700 billion bailout is known officially, began in the twilight of the George W. Bush presidency. Federal Reserve Chairman Ben Bernanke and then-Treasury Secretary Henry Paulson ventured to Capitol Hill to plead with lawmakers that the economy would melt down if they did not approve hundreds of billions of dollars in rescue money.
The first vote failed, sending stock markets plunging, but on the second vote lawmakers approved the program.
TARP was originally intended to support the purchase of toxic assets weighing down bank balance sheets. But federal officials quickly moved to shift the aim of the program to provide capital injections in banks and later used the program to support the ailing auto industry, insurance firm AIG and the beleaguered housing market.
When the Obama administration took office in January, officials vowed to repair the program’s reputation by increasing its transparency and laying out a multipronged approach to supporting the broader economy. The administration took pains to emphasize that money under the program would support average homeowners rather than Wall Street.
Public anger continued, and it peaked with the disclosure that AIG, which received $180 billion in government commitments, intended to pay hundreds of millions of dollars in executive bonuses.
But later in the spring, the bailout efforts began to receive some positive news. The government’s “stress tests” showed that the country’s biggest banks needed to raise capital. Most were quickly able to raise money in private markets, and soon some of the country’s largest — including Goldman Sachs and JPMorgan Chase & Co. — announced they would repay the government.
Public opinion continued to be negative about the program. In a July poll by the financial communications firm FD for Diageo/The Hotline, 50 percent of respondents said they were not confident that banks would repay the government money.
“It’s always going to be hard to turn into a positive message,” said Himes, who thinks there’s a limit to the positive story that can be told. “You’ll never get a lot of political credit for averting disaster.”
More than $70 billion has been repaid to the government. The administration dropped its earlier calls in the budget outline for a backup fund of $250 billion for additional bailout programs. On Monday, the Government Accountability Office (GAO) said that AIG has “begun to show signs of stabilizing in mid-2009.”
The U.S. Chamber of Commerce, which lobbied heavily for the package, said it was essential to righting the economy.
“We declare it an unqualified success, if everyone remembers back to reality and history,” said Bruce Josten, the group’s head lobbyist. “We got in quick, and we succeeded in stabilizing the system. It did not collapse.”
Republicans, however, are overwhelmingly opposed to TARP as a bailout package that picked winners and losers in the economy and a program that fundamentally changed the government’s relationship with private markets.
Rep. Jeb Hensarling (R-Texas) said last week on Fox Business Network that the Obama administration is using the bailout programs “to advance the administration’s social, economic and political agenda.”
Sen. John Thune (R-S.D.) organized a group of 39 Republican senators — along with one Democrat, Sen. Mark Begich (Alaska) — to oppose any effort to extend TARP’s authorities past 2009. Treasury Secretary Timothy Geithner has not yet announced whether he will seek to extend the program.
Some Democrats recognize the Republican attacks and have joined with GOP members in calling for greater transparency and oversight of how the money is used.
Last week, House Republican Leader John Boehner (Ohio) and Financial Services ranking member Spencer Bachus (R-Ala.) introduced a bipartisan bill to create an independent trust responsible for making “all core governance decisions” for any TARP investments greater than 15 percent of a company’s worth. The legislation would also mandate a complete divestment of all TARP funds by Dec. 24, 2011.
The financial bailout and the broader state of the economy will be central to the 2010 elections, and the battle over TARP has already begun.
“On the Democrat side, TARP is going to be a proof point for why the economy is in recovery,” said Anne Kim, economic program director at The Third Way. “Without the TARP, the economy wouldn’t be in recovery. On the Republican side, it’s the exact opposite. It’s kind of a Rorschach test.”
While the parties continue to fight over the program, some Democrats remain concerned about crowing too loudly as Main Street suffers from an unemployment rate that is expected to increase from the current 9.7 percent.
“The view of the Larry Summers crowd down at the White House that has the president’s ear is, ‘What a tremendous success — everyone at Goldman Sachs is getting a $700,000 bonus this year, so it’s working,’ ” said Rep. Peter DeFazio (D-Ore.), a consistent critic of the Wall Street bailouts. “If your total focus in life is enriching a few people on Wall Street and protecting their assets, it’s working. If your focus is jobs for Americans and their assets, this whole thing has been a disaster.”