What does the fact that, so it now seems, the TARP program will only end up costing taxpayers $25 billion tell us about the merits of the program? According to Jonathan Chait, this low price-tag makes the program “one of the most successful policy initiatives in American history.” This is a bad argument. If, as its proponents claim, TARP really did stave off a second Great Depression, then it would have been one of the most successful policy initiatives in American history even if it had cost taxpayers the full $700 billion. On the other hand, if TARP wasn’t necessary, then it likely wasn’t worth it even at the cost of only $100 per American.
Positive assessments of TARP seem to typically assume that the alternative to TARP would have been doing nothing (actually many opponents of TARP also tend to assume this). But this is not plausible. If Congress had decisively rejected TARP, it’s not like Bernanke was going to pull a Ray Patterson and book a cruise to Fiji. Instead we likely would have had an earlier bigger QE I. The overall economy would have ended up roughly in the same place, except that Wall Street would have borne a larger share of the pain.