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CIT Bankruptcy Shows that It is Time to End TARP

Posted By David C. John On November 3, 2009 @ 8:30 am In Economics | Comments Disabled

Sunday, CIT Group, with $71 billion in assets one of the largest small business [1]lenders in the country and the recipient last December of $2.3 billion in taxpayer money filed for bankruptcy. It was the fifth largest bankruptcy in US history.

Monday, nothing much happened. Stocks didn’t collapse. There was no panic. In fact, all of the major US stock indices actually went up. Even a tracker of all of the financial stocks in the S&P 500 stock index only lost about 0.14 percent. CIT’s failure was pretty much a complete non-event.

Now, there is substantial proof that there is no further need for TARP, and there is every reason to end the program as quickly as possible. TARP’s continued existence will make it a political slush fund available to meet the demands of whatever powerful interest group feels the need for taxpayer help. The latest such group is the smaller banks, but if the collapse of a major financial didn’t cause more than a small ripple in the economy, it is hard to argue that comparatively tiny banks will cause much more. After all, there are about 8,400 of them, and while several hundred may fail in the next year or so, new ones are chartered on a regular basis.

The good news is that the financial crisis is clearly over. The bad news (and there always is some) is that the taxpayers’ $2.3 billion vanished in a puff of smoke – one of the debts that will be extinguished in the bankruptcy. This offsets much of the profits that the government made when several banks repaid their TARP advances, and is a reminder that TARP was a gamble that paid off by helping to stabilize the financial sector, but could still cause billions of dollars in losses. Further recycling TARP repayments to small banks, auto companies, or whatever other industry comes along will only increase those losses.

The crisis is over, and it is time to close TARP. It served a purpose, but now it is time to recoup the tax dollars that went to fund it.


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URL to article: http://blog.heritage.org/2009/11/03/cit-bankruptcy-shows-that-it-is-time-to-end-tarp/

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[1] with $71 billion in assets one of the largest small business : http://www.chicagotribune.com/business/chi-tc-biz-cit-1102-1103-nov03,0,7636577.story

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