Transcripts

The TARP Six Month Checkup

SUZANNE PRATT: Sparks flew today at a Senate Finance Committee hearing, evaluating the Treasury's Troubled Asset Relief Program or TARP. The program's overseers say all the banks that took money from Uncle Sam are now spending it. But lawmakers are frustrated with the freedom banks have to do anything that they want with the cash. And as Erika Miller explains, Wall Street's six-month report card on the program is also discouraging.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Treasury says it has spent about $565 billion as part of the TARP program, with the goal of stabilizing the financial sector. Unfortunately, banking expert Robert Albertson believes TARP has done more harm than good.

ROBERT ALBERTSON, CHIEF STRATEGIST, SANDLER O'NEILL: I think the TARP program has had more unintended consequences to the negatives than any positives. It has very much tainted the industry. It has created a lot of TARP hostages that have capital that probably don't need it, certainly didn't want it.

MILLER: Nowadays, TARP is a four letter word, viewed as a government bailout of weak financial institutions. But that's not the way it was presented last September by then Treasury Secretary Henry Paulson and Federal Reserve chief Ben Bernanke. They targeted TARP at healthy banks, as a way to boost lending by buying toxic assets and indirectly help the economy. Instead, TARP morphed into a direct capital injection into banks and even auto makers like General Motors. Finance Professor Viral Acharya says it's not surprising many banks want out of the program and the strings that come with it.

VIRAL ACHARYA, FINANCE PROFESSOR, NYU STERN SCHOOL OF BUSINESS: I'm somewhat concerned that some of the eagerness to pay back the money may actually not have to do with the fact that these banks don't need the money, but with the fact that they don't want actually the strong controls that are likely to come, especially on pay from the government.

MILLER: Goldman Sachs, JPMorgan Chase, Bank of America and Wells Fargo have all signaled they might begin repaying the bailout money in the next few months. For taxpayers, that sounds like good news. But S&P analyst Stuart Plesser says it's not that clear cut.

STUART PLESSER, BANK ANALYST, STANDARD & POOR'S: If banks stop lending because they pay it back or pull back in that regard and it destabilizes the financial system, then that would be a negative for taxpayers as a whole.

MILLER: The government is now stress-testing banks to figure out which ones might need more help if the economy continues to go down hill. The risk is some banks might fail the test and be forced by bank regulators to increase their loan amount. In spite of the criticism of TARP, many analysts do believe the outlook is improving for the financial sector. In particular, analysts are encouraged by the government's plan for a public/private partnership that will get toxic assets off bank balance sheets. Erika Miller, NIGHTLY BUSINESS REPORT, New York.