In the six weeks before the 2008 presidential election, as Treasury Secretary Henry Paulson begged congressional leaders to pass a $700 billion bailout for U.S. banks crippled by overextended risk and the utter worthlessness of mortgage-backed securities, the loudest opposition came not from fiscal conservatives but from labor unions and congressional Democrats calling for a bailout of "Main Street, not Wall Street."
Both presidential candidates, Barack Obama, and John McCain, reluctantly supported it.
"This is something that all of us will swallow hard and go forward with," McCain said on ABC's "This Week," six days before Congress passed and President Bush signed the TARP bill.
Everyone more or less agreed that the sky was falling, and that desperate times called for desperate measures. When Paulson got down on one knee and pleaded with a skeptical Nancy Pelosi in a closed-door meeting, his pleas took hold.
Oh, how times have changed.
Now, the most vocal opposition to the TARP program comes from the far right. The bailout has become a rallying cry for Tea Partiers, and a few incumbent Republicans--from Utah Sen. Bob Bennett to South Carolina Rep. Bob Inglis--have been trounced in their reelection primaries largely over their votes in favor of it.
So it's a bit of a reminder just how different things are now--and how unexpected TARP's political consequences were at the time--to hear President Bush say, basically, that TARP wasn't really of a tough call. From Politico's Andy Barr:
"I made the decision to use your money to prevent the collapse from happening," Bush said during a speech in Tyler, Texas, according to reports from The Associated Press and other outlets...
The former president said the choice to backstop many of the country's leading financial institutions "wasn't that hard for me."
While plenty had reservations about the bailout when it happened, Bush's recollection is a pretty stark reminder that political consensus had indeed coalesced around the notion of taking drastic measures to stop the U.S. financial system from fully collapsing.
"The American people expected us to act, to respond to the best extent we could, to stop the downward flow in the markets and to restore the flow of credit in the economy," House Majority Leader Steny Hoyer said on the day Congress passed the bailout.
It's difficult to find a working politician--especially a Republican--speak of the bailout in such terms these days. In some places, TARP is as toxic as the securities the government bought up.
Meanwhile, President Obama has been repeatedly blamed for it by the broader public, which has transposed TARP's genesis onto his presidency: Only 34 percent of respondents told Pew in July that the bailout passed under Bush, while 47 percent said it passed under Obama. (Obama did support it, and his Treasury Deptartment did implement its latter stages.)
So the president and his party seem to be saddled with the political baggage of the bank bailout, whether they like it or not.
And that baggage appears to be significant. According to Pew, votes in favor of TARP will make candidates less likely to receive support in the coming midterms.
At the same time, TARP seems to have more or less worked.
The U.S. financial system has stabilized. The cost of the program will be far less than its advertised pricetag, according to the Treasury, which now estimates a total cost of $50 billion. While Congress authorized $700 billion, only $388 billion had actually been spent as of the first week of October, and $204 billion had been repaid. Bloomberg reported today that U.S. taxpayers have actually been making money off of TARP repayments--$25.2 billion, in fact--but Treasury doesn't expect the full program to turn a profit.
It's unclear how readily these findings and projections will sink in with the voting public, given that TARP's cost has been reported as $700 billion--the size of the total authorization--for two straight years.
It's already too late for moderate Republicans who have lost in primaries, but it seems like a wise move for Democrats, fighting an image of reckless spending and federal irresponsibility, to get the word out as soon as they can.