Friday, January 23, 2009

Political Lobbying Behind TARP Funding Decisions

In case you need more examples of how the Troubled Asset Relief Program (TARP) has failed us, a recent article in the Wall Street Journal describes several instances where politicians were able to directly influence the decision of whether or not to provide TARP funds to banks. States that have had the most political lobbying or representatives in the right committees have enjoyed the highest success rates for getting help for their local banks.

It probably should go without saying, but shouldn’t the decision of whether or not to allocate funds to these banks be based on something more fundamental than the lobbying efforts of politicians? Remember that they are using taxpayer money to make these capital injections. By offering money to these banks, we are betting that they will turn around, and if they go on to lose the TARP funds, taxpayers are just out of luck. However, if they are able to use the funds to turn their operations around and once again become profitable, then taxpayers will get their money back, and possibly even a little extra. With this in mind, shouldn’t our goal be to identify those banks which we believe can and will revitalize their operations with this borrowed capital? It appears that instead of creating a system with the goal of achieving highest taxpayer return (both monetary and economic), the program has turned into a display of political lobbying power.

I hope that the new administration fixes the TARP before the second round of funding is spent in the same fashion as the first round. This whole program was hastily put together to begin with, and we are now paying dearly for the lax regulation that was included with the bill. Due to the lack of direction, politicians and regulators are able to lobby for their own best interests. President Obama and Treasury Secretary Timothy Geithner need to step up and fill these holes in the program. The U.S. government doesn’t have $350 billion more to waste. We have to ensure that every dollar is used in the most effective manner possible, and I think it is safe to say that we aren’t anywhere near maximum return. Here’s hoping that we figure out a way to keep politics out of this program and focus on how we can allocate this next $350 billion to best help the economy and taxpayers.

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