Over the past year, U.S. companies have hired more than a million workers. Large banks have paid off their bailout money, with some rescues turning a profit for Uncle Sam. But it is not yet safe to say that the Troubled Asset Relief Program (TARP) and other emergency measures have proved successful.

OUR VIEW: Hated bank bailout is about to turn a profit

In the short term, TARP and other extraordinary efforts have succeeded. Two-and-a-half years ago, the risk was that as panic overtook Wall Street, no one would be able to borrow at any price. Home-buying would cease, and good businesses would have to lay off even more millions of workers (in addition to the 8 million jobs lost).

Today, home buyers with good credit and large corporations can borrow at low rates. Taxpayers have recouped 53% of their TARP investment dollars. Car sales were up by double-digit percentage points last month.

But it is premature, to say the least, to declare the TARP a success. There’s a hidden cost to the government’s financial rescues, especially as we’ve failed to fix old financial rules, instead layering on new regulations.

Neil Barofsky, the bailout inspector general, said this best just last month: “The ultimate cost of bailing out Citigroup and the other too-big-to-fail institutions will remain unknown until the next financial crisis occurs.”

How’s that? It goes to how the government approached its rescues. Beginning in March 2008, Washington’s strategy was to save the economy by saving lenders to large financial institutions, so as to keep panic from overwhelming banks. So the sophisticated investors who lent money to failing firms such as Bear Stearns and AIG did not lose a dime.

The problem is, those lenders have learned a lesson for the next time. Until Washington proves it, lenders to the financial industry will believe that they are “too big to fail.” That is, even if Washington lets a large, complex financial firm go down, the government will save the lenders to that firm.

This implicit guarantee means that large financial firms have an advantage over other companies, including small businesses. If you’re a conservative investor, you’d rather lend money to a too-big-to-fail Wall Street bank rather than, say, to a tech start-up whose executives have no friends on Capitol Hill.

Although the economy is “recovering” then, the government is distorting that recovery, and perhaps setting up bigger problems for the future. Wall Street, encouraged by the government, could continue to borrow and lend too much, further burdening Americans with too much debt.

We might not have avoided the day of reckoning but only delayed it — and made it worse.

Original Source: http://www.usatoday.com/news/opinion/editorials/2011-02-09-editorial09_ST1_N.htm