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TARP was ‘abysmal failure’: former head

A for sale sign stands in front of a bank-owned home in Las Vegas in Las Vegas, Friday, Feb. 8, 2008.

Jae C. Hong/AP

The Troubled Asset Relief Program that was set up to bail out U.S. financial institutions during the worst of the crisis in 2008 is rarely discussed anymore, but TARP's former director is ending the silence with explosive words, calling the program an "abysmal failure."

In a recent interview with Yahoo! Finance to plug his new book, Neil Barofsky, the former TARP head, said most people forget two key points when talking about TARP: the program has done very little to help homeowners, and the profits that government officials say TARP has made are misleading.

On the homeowner issue, Mr. Barofsky said TARP would have never gotten past Congress had it not included provisions that forced the government and the banks to help struggling homeowners. His point: it didn't take an expert to realize that pouring hundreds of billions of taxpayer money into financial institutions, effectively as free bailout money, was going to help stabilize financial markets. So the only reason the Congress approved such a drastic measure was to get something back for homeowners.

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However, there has been very little traction on this front, and only about 20 per cent of the funds devoted to homeowners being doled out.

Then there's the problem with profit estimates. We often hear about how the banks paid back their loans with interest, so the government actually made money. But Mr. Barofsky said this is only true for the big banks. Over half of the 325 banks that got TARP funds have missed interest or dividend payments, and AIG has been a nightmare for the government.

If you dig through the full Treasury reports, Mr. Barofsky said, you'll see the total program is expected to lose between $32-billion and $70-billion (U.S.). $109-billion was still owed as of June 30.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More


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