DSCC - Concord Monitor Editorial: "Hodes is right" to focus on unemployment and foreclosures

Hodes is right to shine a spotlight on unemployment and foreclosures, as well as the local spending that cities, towns and school districts have had to forgo. These are among the concerns of the stimulus legislation passed earlier this year and could be the focus of further action.

 

Concord Monitor Editorial: Did TARP work? And what next?

October 8, 2009

http://www.concordmonitor.com/apps/pbcs.dll/article?AID=/20091008/OPINION/910080310&template=single

 

One year later, U.S. Rep. Paul Hodes has no regrets about having voted against the federal bailout of Wall Street. He thought then that Congress too cavalierly granted the Treasury Department authority to spend hundreds of billions of taxpayer dollars. And he maintains today that federal regulators have been overly solicitous of large financial institutions and insufficiently focused on homeowners, consumers and ordinary businesspeople.

"Our job was to get this right," Hodes said of his 2008 vote against the bailout efforts collectively dubbed TARP, "not to just do anything."

Although we continue to disagree with his vote, we share many of Hodes's concerns. Let's look at some of the points he raises and see where we might go from here.

• Was Congress right to pass TARP?

Almost any bill passed by Congress, and certainly any bill passed in a panic, has room for improvement. Hodes's criticisms were legitimate and, given where we are today, there's no disagreeing with his assessment that Wall Street has been better served than Main Street.

 

Precisely because an economic calamity was averted, however, it can be hard to remember how quickly the panic of a year ago was growing. No, that panic didn't call for doing just anything, but what Congress did included one essential thing: giving the Treasury Department the authority to do whatever it took to stem the panic.

Is it surprising that, on hardly any sleep and with the heads of the country's largest financial institutions on perpetual speed dial, the Treasury secretary and Federal Reserve chairman changed their mind about how to proceed? Hardly. When they scrapped the idea of buying up bad debt in favor of instant cash infusions, was it a good thing that they had the necessary authority to execute their plan? Absolutely.

 

• Has TARP worked?

The program's inspector general, Neil Barofsky, recently told the Senate Banking Committee that TARP has not realized its goal of increased lending. Then again, Barofsky said, lending probably would have dried up even more without TARP.

There's no way to know what would have happened if enough of Hodes's colleagues had agreed with him and further delayed, let alone prevented, a congressionally sanctioned Wall Street bailout. It's also impossible to prove that any given government interventions saved the day.

What can be said is that the financial system was truly in crisis, and a year later it's back from the brink. That was not sufficient to cause a rebound in job creation or homeowner solvency. But it was a necessary start. Had Wall Street been allowed to collapse, does anyone imagine that a year later Main Street would be just fine?

 

• What now?

Hodes is right to shine a spotlight on unemployment and foreclosures, as well as the local spending that cities, towns and school districts have had to forgo. These are among the concerns of the stimulus legislation passed earlier this year and could be the focus of further action.

More important for the long term, the House Committee on Financial Services, of which Hodes is a member, must address the vulnerabilities that allowed the financial system to come so close to collapse.

Yes, government intervention was able to stop Wall Street from falling off the cliff this time. But in the absence of key reforms, that cliff will only be bigger next time. Keep in mind that emerging from a crisis where several businesses were accurately deemed too big to fail has involved making some of those businesses even bigger.

Hodes is running for the Senate next year. He could do much to make the case for himself by bringing his concern for "get(ting) this right" to the challenge of avoiding having to do it all over again anytime soon.