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This week, economists Mark Zandi and Alan Blinder released a new report that is the first attempt to comprehensively estimate the effects of the policy responses to the economic crises of the last few years. They find that the government's direct intervention to stabilize the economy since 2008 "helped avert a second Depression"

and that it can be "empirically proved." Zandi, a leading conservative who advised John McCain's presidential campaign, and Blinder, former vice chairman of the Federal Reserve, employed "straightforward" and "conventional" modeling techniques to simulate four scenarios that quantify the impact of both the fiscal stimulus and financial-market policies.

The report finds that, without both the stimulus and financial policies, the "GDP in 2010 would be about 6 1/2 % lower, payroll employment would be less by some 8 1/2 million jobs, and the nation would now be experiencing deflation." The report highlights two government programs that significantly contributed to preventing further economic depression: President Bush's Troubled Asset Relief Program (TARP) and the fiscal stimulus package, which includes President Obama's American Recovery and Reinvestment Act (ARRA).

While noting that "particularly heavy criticism has been aimed at" both programs, Zandi and Blinder find that these programs were vital to staunching the economic bleeding that characterized the low point of the Great Recession. Despite this factual documentation, many Republican policymakers are nevertheless calling for a repeal of these successful programs. In slamming the government for its participation in the economic recovery, Republicans are essentially campaigning for "Great Depression 2.0."

A TIME FOR TARP: Enacted on October 3, 2008, under the Bush administration, the initial $700 billion TARP proposal was a five page bill that gave carte blanche to the Treasury and was hard for lawmakers who "were opposed to a taxpayer bailout of bad banking decisions" to swallow. But, after Congress attached a degree of oversight, TARP was the right policy at the right time "to restore stability to the system." According to Zandi and Blinder's economic model, the financial policy efforts coupled with TARP estimate that, in 2011, "the real GDP is almost $800 billion (6 percent) higher because of the policies, and the unemployment rate is almost 3 percentage points lower." The "financial-rescue policies" are estimated to save almost 5 million jobs by the end of that year.

TARP targeted three critical problems driving the economic recession: the foreclosure crisis, the auto industry, and the failure of major financial institutions. While the Housing Affordability Stability Plan under TARP was less successful in combating the mortgage foreclosure crisis, TARP was "instrumental" in buoying the auto industry by providing money necessary to ensure orderly bankruptcy and the financial viability of GM and Chrysler. Without that support, the auto industry and its supply industries would have "been shut down and their assets sold to pay creditors."

The "most successful part" of TARP, however, was the Capital Purchase Program (CPP). In offering $250 billion to "build capital to increase the flow of financing," the CPP imposed income restrictions and "corporate governance" oversight that made the "banks want to quickly repay" TARP loans. With six banks producing "a return on investment for the government greater than 20%" and the expectation that nearly all CPP funds will be repaid with interest, the "CPP almost certainly will earn meaningful profit for taxpayers."

Written by y Faiz Shakir, Amanda Terkel, Matt Corley, Benjamin Armbruster, Zaid Jilani, Alex Seitz-Wald, Tanya Somanader

for the Progress Report

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