The suggested use of the Troubled Asset Relief Programme to support US job creation rather than simply to address the financial crisis strikes me as morally hazardous.
As the FT reports, some Democratic members of Congress are pressing for some of the $700bn Tarp fund to be used for tax relief for job creation, or for state spending programmes.
As the immediate impact of last year’s crisis on financial institutions has faded, with Bank of America having paid back $45bn of Tarp assistance and Citigroup pressing to repay $20bn, politicians’ thoughts naturally turn to other ways to spend the money.
But treating the Tarp as a general purpose fund, rather than repaying debt when contributions are returned, is not only a sloppy use of public money but risks making it impossible ever to get approval for a Tarp-like programme again.
Earlier this year, Congress became extremely angry with hindsight at the success of Hank Paulson, the former Treasury secretary, in getting approval for Tarp and then changing tack on how the money was used. Instead of being used to buy assets, its primary use became to invest directly in banks.
Now, Congress seems to want to change the rules itself and use the Tarp money for its favoured projects, in the same way that stimulus funds were divided among states and districts.
If the Tarp goes down in history as an all-purpose fund, it is hard to imagine the Republican side in Congress being cajoled into approving another such initiative in future.
Given the fact that, unpopular as it was, the Tarp helped to restore confidence to the financial system and to heal credit markets, that is a risky road to take.
