>In the selling of financial reform, which passed the Senate yesterday, there was no more powerful rallying cry than "No More Bailouts." Commentators targeted TARP, the $700 billion government fund that capitalized companies at the height of the economic crisis -- and is now expiring. (To satisfy Scott Brown, who opposed a tax on the biggest banks, Democratic congressional leaders helped pay for reform by shutting down TARP three months ahead of schedule.)

TARP has been both a policy success and a political disaster. Economists across the political spectrum agree that without Washington's shot in the arm, millions more jobs and thousands more businesses could have been lost -- most of them far from Wall Street. TARP's "bailouts" of the banking sector were actually high-interest loans that have turned a profit for taxpayers. The net costs (about $105 billion) came from mortgage aid and the auto industry and AIG -- not from banks. And, of course, $105 billion is far less than the cost of another Great Depression. TARP is the rare government program that ended early and under-budget, and having met a worthy goal: the beginning of an economic turnaround.

So why the big gap between perception and reality? And how can incumbents defend their pro-TARP votes? Among pollsters in both parties, there is remarkable consensus on the subject.

First, most Americans don't believe TARP worked. According to Whit Ayres, a leading Republican strategist, "People are not persuaded it did anything to avert an economic collapse, and that is especially true on the right." Another GOP pollster said, "'Things could have been worse' is never a good slogan, particularly if you're out of a job and things being worse is a scenario that's tough to imagine."

Second, people view TARP as rewarding bad behavior rather than punishing it. Congressmen swap stories about town hall meetings where voters ask why they helped greedy bankers rather than ordinary people. Fred Yang, a top Democratic pollster, said, "It's the difference between perception and reality ... [and] this perception was compounded by the big bonuses TARP recipients decided to give themselves."

Ayres added that AIG, in particular, deserves "the political booby prize of the decade" for turning a vaguely negative image into a clear-cut national scandal.

Third, Americans believe the money was wasted -- and conflate it with other programs. As one banker emphasized, about $24 billion of the $147 billion banks have paid back is profit (from interest, dividends, and appreciation in the value of warrants). But the pollsters said people don't separate TARP from the stimulus or the budget deficit. They see it as more wasteful Washington spending that will be a burden on the next generation, and they certainly don't distinguish the bank bailout from other aspects of TARP.

Fourth, politicians must define their votes before opponents do it for them. Two GOP strategists separately commended Rep. Gresham Barrett (R-SC) for his TARP defense -- even though it failed to save his campaign for governor -- and said Republicans need to rebut the "big government" charge by emphasizing the dire circumstances the country faced, and the danger a collapse would have posed to regular families. Ayres said his party's candidates should argue that they voted for it following the advice of a Republican president, a Republican presidential nominee, and a Republican Treasury Secretary -- and opposed the auto bailouts, stimulus, and spending under President Obama.

Fred Yang said Democrats need to "take this issue head on ... they can't ignore it." He recommended that they defend their votes in context by "putting it in a bigger frame" of Republicans creating the mess and Democrats taking "the tough, unpopular steps to clean it up." Yang added that passing financial reform was critical, so Democrats can now make the argument "they will prevent this kind of crisis -- and bailout -- from ever happening again."