The error of attacking the TARP

A Congressional oversight committee has gone after the Treasury on how it used TARP funds. Doing so is like asking why the fire department picked a 4-inch hose to put out a fire rather than a 6-inch one. In a catastrophe, the need to save to save time trumps method.

According to The Wall Street Journal, "The U.S. Treasury has failed to reveal its strategy for stabilizing the financial system, not answered questions asked by a government watchdog, and has done nothing to help struggling homeowners, a report being released Friday charges."

What strategy would that be? Paulson & Co. were faced with a collapsing credit market and the chance that several major financial firms would fail. Under those circumstance, the whole US economic system could have melted down.

The original purpose of the TARP was to buy toxic assets from banks. The Treasury quickly decided that the process would take too long and would require complex calculations as to the value of troubled bonds which did not trade. Instead, Paulson elected to mainline capital into banks by taking equity positions in large financial firms. It would be hard to argue that this did not stabilize they system, at least temporarily.

The second major beef from the oversight committee is that Treasury did not do enough for mortgage owners. How would that have worked? Bailing out individual mortgages would have taken months, even if the process was done though the banking system. Which mortgages would quality? What would be the process for deciding whether help would be based on homeowner income or some other scale of need? How would hundreds of thousands of troubled home loans be identified.

The TARP was a fund for a series of emergencies. Looking back can always be done with 20/20 vision.

Douglas A. McIntyre is an editor at 24/7 Wall St.