Brad DeLong is arguing that the government’s actions since the Lehman failure have been good — and thus that TARP was not a failure because it saved the financial system. I think the issue is this:
If we ask the question: Given that passing a resolution authority was impossible, was TARP a failure? Then I think the answer is no. If you take the best solution out of the set of possibilities, then the Treasury and the Fed did what they could given the constraints they faced. In other words TARP was better than using the bankruptcy process as it is currently structured to resolve the crisis. (Note: Steve Lubben is proposing that a modified Chapter 11 process would be a superior alternative to a resolution authority.)
However, if you simply ask the question: Was TARP a failure? Then you have to take into account the fact that passing a resolution authority in September/October 2008 was a possibility. The sense in which TARP was a failure was that a conscious decision was made to transfer funds from the taxpayer to the financial system in a way that all but ensured that a large chunk of the money would be lost (see CIT bankruptcy). This was necessary because there was no resolution authority and no way for the government to provide DIP financing (as it did for the GM and Chrysler). Thus, the responsibility for TARP’s “failure” lies with whoever took the possibility of passing a resolution authority off the table.