The GAO reports on the complications of measuring the effectiveness (or ineffectiveness) of TARP actions.
TARP’s activities could improve market confidence in institutions that choose to participate and have beneficial effects on credit markets, but several factors will complicate efforts to measure any impact. If TARP is having its intended effect, a number of developments might be observed in credit and other markets over time, such as reduced risk spreads, declining borrowing costs, and increased lending. However, several factors will make isolating and measuring the impact of TARP challenging, including simultaneous changes in economic conditions, changes in monetary and fiscal policy, and other programs introduced by Treasury, the Federal Reserve, Federal Deposit Insurance Corporation, and Federal Housing Finance Agency to support banks, credit markets, and other struggling institutions. As a result, any improvement in capital markets cannot be attributed solely to TARP, nor will a slow recovery necessarily reflect its failure, because of the effects of market forces and economic conditions outside of the control of TARP. Moreover, little time has passed since the initial infusion of capital into the institutions, and a variety of other programs and efforts directed at bolstering the economy and helping homeowners are still being considered. Nevertheless, we have preliminarily identified some indicators to facilitate our assessment of TARP’s activities. We believe that these preliminary indicators, when viewed collectively, should signal whether TARP and other programs are functioning as intended. Among these preliminary indicators are interest rate spreads, mortgage rates, and mortgage originations. We also have identified other indicators that may prove useful as TARP evolves. Together, these indicators should provide additional information to policymakers and others on the overall stability of our financial markets.12
One of the thoughts about actions taken is that the results of such actions will make for a less severe downturn. How is it possible to establish such a claim, if ever with any degree surety, and how is ‘overall stability’ connected to TARP actions, if at all?