A couple of weeks Ryan Avent reached the same conclusion:TARP was an essential piece of a necessary evil – that is, it saved the American financial system from collapse, but it was put in place in a way that was excessively favorable to the very bankers who had presided over the collapse. And this sets up exactly the wrong incentives as we head into the next credit cycle.
[G]overnment interventions, of which the TARP was a key part, prevented what leaders in the early 1930s did not—a cascade of wealth-destroying, money-supply shrinking bank failures. And because the interventions successfully halted the cycle of fear in financial markets, the programme ended up costing practically nothing... The truth is that the TARP, despite the profit, has come with significant negative costs. It has preserved the structure of the banking system in its current, over-concentrated, too-big-to-fail form. And it has created an absolutely massive moral hazard problem. And so in a way, we're all still paying the cost of TARP, because the legacy of that intervention continues act as a de facto subsidy to size and risk. And one day that bill may come due, in the form of another costly crisis.
There are other observers, on the other hand, who sing nothing but praise for TARP. If it were possible, it would be useful to look at the difference between (1) the net present value of future costs created by TARP and (2) the costs that would have been incurred in 2008 and 2009 had there been no TARP. Of course, such a calculation is not possible because (1) requires knowledge of the future and (2) requires knowledge of a counterfactual. One thing, though, does seems sure to me: the moral hazard problem is now bigger than ever.