Timothy Geithner defends TARP.

Financial crises matter not because they hurt banks and bankers. They matter because they kill jobs, businesses and the value of retirement savings. To protect Main Street from the damage caused by a financial crisis, you must first put out the financial fire. That is precisely what the government did.

Except that it didn’t. It restored confidence in the nation’s largest financial institutions, by declaring them too big to fail. But it in no way restored confidence in the biggest financial market, the market for mortgage-related securities. That market is still in agony. The latest problem is the “foreclosure scandal.” Mike Konczal breaks it down. It seems to have nothing to do with borrowers not deserving to lose their homes and everything to do with problems in determining who exactly has the right to foreclose on them, given the complex chain of ownership created by securitization.

The process known as “shadow banking” is still in a state of paralysis, as far as I can tell. I am not saying that government could have fixed it, or that fixing it would have been a good idea. But I do not agree that TARP fixed the financial system. The operation was a success, but the patient died.

The biggest problem I have with TARP is the heedless way in which leaders abused power. The TARP was enacted in order to “unclog the financial system” by buying toxic assets. Who knew that the biggest toxic asset clogging the financial system was General Motors? In the end, hardly any TARP funds were used for the purpose that it was created, which was to buy mortgage-related assets.

From Geithner’s point of view, he made great sacrifices by doing something unpopular that achieved great results. If that becomes the historical verdict, then next time leaders want to ratchet up their arbitrary use of power, they will view Geithner as their role model.