On Sunday, the second anniversary of the collapse of Lehman Brothers, analyst Fareed Zakaria on CNN’s GPS said in no uncertain terms that if not for the Troubled Assets Relief Program (TARP), the economy would be in far worse shape–not just here but around the world.
First he reminded viewers just how bad everything was. In the immediate wake of the collapse, the economy was in a dreadful state: in the fourth quarter of 2008, the real GDP was down 6%; 1.7 million U.S. jobs were lost (the largest drop in 65 years); and net household worth plummeted by $5 trillion–”the largest and fastest such drop ever recorded.” Banks, he pointed out, “simply stopped lending,” and businesses were unable to pay employees or suppliers because of the lack of short-term lending; private sector borrowing had dropped more than at any time since the 1930s. Trouble spread across the globe, with a contraction in global trade “larger than in the first year of the Great Depression.”
But there was a bright spot: one thing that happened was that “Washington, incredibly, actually worked.” Democrats and Republicans, he pointed out, came together; “George Bush was working with Barney Frank,” said Zakaria, and together, with all that concerted effort, they passed the “huge rescue package” that was TARP.
TARP may not have been perfect, he said, but “in the midst of a galloping crisis . . . it saved the day. It sent a signal to markets that government would, in the end, guarantee the financial system . . . We’ve ended up with a bad recession instead of a depression, with 10% unemployment” instead of an estimate, by former Fed vice chairman Alan Blinder, of possibly 25% “as in the 1930s . . . Oh, and by the way,” he added, “it will cost the government almost nothing . . . because . . . most of the government’s investments will make a healthy profit.”
The ultimate proof that TARP worked, Zakaria said, was that now no one thinks it was necessary. “Republicans now say, ‘What crisis? There was no crisis. We didn’t need to do anything.’” Democrats, he said, “run away from it” because people hate the idea of having given money to banks. And in the end, he concluded, “the most effective bipartisan government program of recent decades . . . is now a lonely orphan, claimed by no one.”
Which is a shame–because, he pointed out, more bipartisan problem-solving efforts are exactly what are needed now to improve the current economic situation.