Problems with the TALF

The Administrations program to increase lending to consumers, TALF, the Term Asset-Backed Loan Facility, is having trouble getting started, the Washington Post reports.

Officials envisioned TALF supporting tens of billions of dollars a month in new lending, saying it could eventually total $1 trillion. But in March, when it was launched, it backed only $4.7 billion in auto loans and credit cards. For April, it logged only $1.7 billion.

One big problem is the fear of government restrictions on investors in the program. Not just current restrictions built into the law, but future changes that might appear at the behest of Congress:

There are restrictions on the business activities of participants in the program. For example, investors who control more than 25 percent of a fund that benefits from the loans face restrictions on their ability to hire immigrants using H-1B visas.

But perhaps more significant than any established limitation on the business practices of TALF participants is a fear that the government could retroactively change the terms, exacting new limits on what investors can pay their executives, for example, or trying to claw back profits that firms make in the program. The recent outcry over bonuses paid to executives at American International Group has heightened those fears.

This points to the problem of implementing potentially sensible policies when Congress may be involved. The limitation on H-1B visas is idiotic. The potential for further harm is great. This is especially so, given the comments of the Chair of the Congressional Oversight Panel of the TARP, Elizabeth Warren. Given her pronouncements I would be paranoid about participating in any government sponsored program.

An important point is that policies that are theoretically beneficial can be horribly implemented when Congress gets involved. This is a source of big government failure than can offset any market failure.