The Benefits and Costs of the TARP Bailouts: A Critical Assessment

Abstract

We assess benefits and costs of the Troubled Asset Relief Program (TARP) based on theory, data, and empirical research to date. TARP was intended to attenuate systemic risk and improve the real economy, and we focus on these as the most important potential effects of the program. Evidence suggests mostly short-term social benefits in reducing systemic risk and improving the real economy. However, long-term evidence is limited — suggesting relatively long-lasting real economic improvements that might be offset by long-term increases in systemic risk. We give TARP a grade of “incomplete,” pending further research, and suggest some directions for this research.