Terminate TARP, Obama slush fund

Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program (TARP), announced this week that every man, woman and child in America is exposed to nearly $80,000 of risk from government programs intended to stabilize our financial markets. While we know that figure is a ceiling — not a floor — it’s an unprecedented amount of taxpayer exposure.

Like me, most Americans agreed that something needed to be done last year to unfreeze our credit markets, but when programs designed to thaw our markets are no longer being used for their intended purpose of financial stability, we must get rid of them. It’s time to terminate TARP.

{mosads}In September, our financial markets froze. There was an economic emergency and the government rightfully took action. While I co-authored a solution with my Republican colleagues that would have been more effective and less injurious to our economy, TARP, the $700 billion toxic asset purchase program, was enacted.

Many of my colleagues and I opposed TARP, fearing it would not be used for its intended purpose of financial market stability, political considerations would drive decision-making at the Treasury Department, and it would produce a never-ending cycle of bailouts that would fundamentally damage our free-enterprise system and drown future generations with unprecedented debt. Unfortunately, we were right.

While it was billed as a toxic purchase program, on Day One TARP transformed into an equity investment vehicle designed to pump taxpayer support into our nation’s largest banks. In December, it transformed once again when taxpayer money was first used to bailout nonfinancial institutions, Chrysler and General Motors. Americans were told the initial support would ensure automakers would not need future bailouts, but Chrysler and GM have received $80 billion of involuntary taxpayer capital.

This shift was extremely dangerous because if TARP is used for auto companies today, will it be used for the airlines tomorrow?  America is asking if Starbucks will qualify for a taxpayer bailout. The 2.6 million job losses since President Obama took office illustrates that no private industry or individual is immune from pain in this economy, but TARP is now being used to pick winners and losers among us — something it was never intended to do.

TARP was abused again when the administration used it to force unprecedented bankruptcy reorganization plans upon GM and Chrysler creditors. Under the administration’s plans, which were leveraged by TARP funds, bondholders who were owed far more than the United Auto Workers trade union received substantially less than the union did. In the Chrysler case, the UAW actually gets to own the company.

This unequal treatment is almost unprecedented in bankruptcy law. The UAW union is a close political ally of the Obama administration. Bondholders and taxpayers, including many struggling middle-income workers trying to fund their 401(k)s, apparently are not. Furthermore, in the Chrysler case, the Italian carmaker Fiat, which was owed nothing, will get up to 35 percent of the company if it causes Chrysler to domestically produce cars with a fuel efficiency of 40 miles per gallon. TARP is being misused to dictate to the American people that they drive smaller cars.

{mosads}It’s plain to see that the program originally intended for financial stability and taxpayer protection has become a $700 billion revolving bailout slush fund to promote the administration’s political, social and economic agenda. And, it is not just the administration’s agenda — Congress is getting in on the act, too. At the same time taxpayers may lose their Capital Purchase Program (CPP) investments in firms like CIT, congressional Democrats want to use so-called “profits” from CPP dividends to advance a misguided housing policy agenda.

Taxpayers would rather have their money back. That’s why I authored the TARP Repayment and Termination Act of 2009 (H.R. 2745), which would terminate the program on Dec. 31 of this year. The bill would allow TARP recipients who are deemed “safe and sound” to pay back the taxpayer and ensure those funds are not recycled for the bailout slush fund but diverted to deficit reduction.

While we remain in a recession, the stress tests conducted this spring were largely positive. Americans can take heart in that the Treasury and Federal Reserve have identified the capital needed for major TARP recipients to weather a worst-case scenario. Several major banks have successfully raised that needed capital in our capital markets.

Finally, the voluntary contributions of investors are replacing the involuntary contributions of taxpayer, and if they were not, there is about $100 billion left in TARP that could be used by year’s end. Also, the Federal Reserve still retains its Section 13(3) emergency powers that have been used to a great extent to stabilize the economy during the past year.

Millions of hardworking Americans have lost their jobs as a result of this crisis. But no nation can bail out, borrow and spend its way to prosperity. It is time to terminate TARP and allow voluntary investment, fiscal discipline and the spirit of American entrepreneurialism to be unleashed.

Hensarling serves on the Congressional Oversight Panel for TARP and is the top Republican on the House Financial Services Subcommittee on Financial Institutions and Consumer Credit.

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