Who Won, Lost Under TARP?

Photos: Those Who Profited From the Recession

As the midterm elections near, the campaign has shifted into high gear, with the economy front and center in voters' minds and politicians' rhetoric. One issue that has remained contentious is TARP, the bailout program that gave a lifeline to failing banks in 2008, which the GOP has presented as emblematic of wasteful and ineffective government spending.

Republicans have even vowed, in their new conservative agenda, "A Pledge to America," to end the program, a curious promise, since TARP officially ends this Sunday. (A spokesman for House Republican Minority Leader John Boehner says that even though the program has ended, the government could still bail out other banks in a future crisis, which is why the Pledge includes the reference.)

The GOP's vow underscores how divisive an issue the financial rescue remains. While most economists say that the bailouts prevented an even worse catastrophe, polls show that much of the public believes that the money was a waste. "People see that Wall Street has rebounded but Main Street hasn't," says Jeffrey Burnam, a professor of government at Georgetown University. "The fact that TARP was necessary to get the economy back on track is lost in the public understanding."

Whether the bailout helped stop another depression or did nothing at all, it was a lot of money. Around $386 billion was spent, according to Treasury Secretary Timothy Geithner. Where did it all go and who made out the best?

That depends whom you ask. Obama and Bush administration officials claim that the biggest winner is the American public. Unemployment may still be hovering around 10 percent, but without the program, the administration has argued, it could have gone much higher—some economists say it could have hit 25 percent. And administration officials point out that not all the money went to banks and car companies: millions of homeowners were given help to prevent foreclosure.

Photos: How the Other Half Lives Kenneth D. Lyons

"The program worked. It broke the back of the panic," says Tim Massad, the acting assistant secretary for financial stability. "It succeeded in getting the credit markets started again. ... It was far more successful than most people expected."

But with the economy still in the dumps, the banks are the clearest winners. Take Bank of America; it was on the brink of death thanks to billions in losses from toxic mortgages. The company's shares plunged from $37 to around $3 at the worst of the crisis. Two years after a $45 billion lifeline from the government, the bank is bringing in mounting billion-dollar profits, taking in $3.1 billion just last quarter—its stock price has risen to $13.

Citibank and Wells Fargo were also saved from destruction with tremendous doses of taxpayer money. Both banks are again raking in billions per quarter. "The banks were on the ropes, so they took their lumps, wrote off the losses, and now they are looking pretty good by comparison," says Brian Bethune, chief financial economist at IHS Global Insight.

The banks were also allowed (some might say "pushed by the government") to take over struggling rivals in a way that gave them far more power over the market. Wells Fargo took on Wachovia, Chase got Washington Mutual, and Bank of America took over investment house Merrill Lynch. And they did it all for a song, says David Wyss, chief economist at Standard and Poor's, a financial research service. "They took a huge amount of market share. [In any other situation] it would have been forbidden by anti-trust laws. [The Department of] Justice would have come out against it," he says.

Treasury officials are quick to point out that those three banks have returned all their funds. And AIG, the biggest holder of bailout money, is selling several of its units to pay down its TARP obligations. Treasury officials say they expect the ultimate cost of TARP to the taxpayer to be around $50 billion—far less than the $340 billion originally expected. Roughly $200 billion has already been recovered.

If the banks were the obvious winners, Congress—specifically those senators and representatives up for reelection this fall—may be the losers. Despite the successes of TARP, the contrast between the banks' quick return to health and a still-foundering Main Street has angered voters in the run-up to midterm elections.

And Democrats seem poised to take a lion's share of the blame. Though TARP was proposed and passed under the Bush administration, with bipartisan votes in Congress, the policy is more closely associated with the Obama administration. "Voters tend to view the stimulus done under Obama and the TARP under Bush as one and the same big-government policy," says Nolan McCarty, professor of politics at Princeton University. An August Pew poll found that almost half of Americans incorrectly believe that TARP was enacted under the Obama administration.

And with the Tea Party gaining steam ahead of November and pushing many Republicans further rightward, the GOP may have an even stronger incentive to point fingers. "The conservative wing of the Republican Party can say they have nothing to do with TARP and they have purged the moderates already," says McCarty, adding that "that means the Democrats may take the brunt of [voters' anger]."