Center for American Progress suggests how to disburse second-round TARP funds

Group lays out four guiding principles for use of bailout money

February 06, 2009

By Andrew Jakabovics, Center for American Progress

Treasury Secretary Timothy Geithner next week will unveil the Obama administration’s much anticipated plan to use the remaining $350 billion in financial rescue money requested from Congress less than a month ago. The speed at which Geithner and the new administration’s other financial advisors are moving is commendable and necessary given our rapidly deteriorating economy, but equally important will be the guiding principles supporting the new plan.

We at the Center for American Progress suggest that four overarching principles should guide the Obama administration as it prepares to disburse this second round of funding under the $700 billion Troubled Asset Relief Program, or TARP funding that Congress initially approved amid the global financial markets meltdown in September last year. We believe these four guiding principles must remain paramount. First, taxpayers must be protected. Second, any actions taken to help financial institutions must be transparent. Third, all programs implemented under TARP must be part of a coherent economic stimulus and recovery strategy. And fourth, “moral hazard”—creating a set of incentives that serve to reward bad behavior—must be avoided to the greatest extent possible.

Adhering to these four principles would mark a definitive break with the TARP program under Bush administration Treasury Secretary Henry Paulson, which was widely viewed as a series of erratic, one-off interventions, including too many secret giveaways to the undeserving, which failed to address systemic problems. The Paulson Treasury did little to provide a sense of stability and strategic thinking. Indeed, had a comprehensive approach been implemented a year ago, many aspects of the current crisis could have been averted.

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Andrew Jakabovics is Associate Director for the Economic Mobility Program at the Center for American Progress. To read more about the Center’s economic analysis and policy recommendations please go to the economy page of our website.

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