The $700 billion Troubled Asset Relief Program (TARP) is collapsing under its own weight. The Obama administration’s perpetually embattled treasury secretary, Timothy Geithner, tried very hard on Tuesday morning to convince the TARP oversight panel that he had a plan and his plan was working, but the panel’s members didn’t sound convinced. Republicans have an opportunity to seize the initiative from the Obama administration, which has bungled its implementation of TARP. But at this point, it’s not clear whether the party can bridge a divide that opened over the original vote on the TARP plan. I asked the two Republican members of the TARP oversight panel how the GOP should respond to the financial crisis. John Sununu, a former New Hampshire senator who lost his race for re-election in November, voted for TARP. Jeb Hensarling, a representative from Texas, voted against TARP — twice. Both are extremely critical of the administration’s handling of the bailout, but they offer different views on whether TARP has worked or is likely to work. When the TARP oversight panel issued its April report, both Sununu and Hensarling dissented. But Sununu wrote an additional view (which Hensarling did not join) criticizing the panel for overreaching. The oversight panel, chaired by liberal law professor Elizabeth Warren, made unfavorable comparisons between the administration’s approach, which it labeled “subsidization,” and the approaches of other countries that have dealt with their banking crises by nationalizing or dismantling problem banks. “The April report spent so much time discussing different alternatives, I think it could have left the reader and public with the impression that the panel had concluded that none of the Treasury programs had worked and the impression that the panel was recommending a specific alternative,” Sununu says. “That simply was not the case.” Sununu argues that TARP “did help to stabilize financial markets during the critical period of November and December of last year.” Subsequent programs, such as Geithner’s proposed public-private partnership, “haven’t even been implemented yet. . . . We should be focused on evaluating and monitoring the effectiveness of existing programs,” he says. “We should be primarily focused on giving taxpayers information on how these programs are structured, how they’re working, and whether they’re having their intended effects.” Hensarling, by contrast, says that he would vote against TARP a third time if he could. He says he understands why some Republicans voted for the plan but reports that a number of his colleagues now are suffering buyer’s remorse. “I think there is a fairly unified position that the bailouts have not been effective, and some of these firms are going to have to be reorganized,” he says. Hensarling is not shy about sharing his opinion on the public-private partnership: “I have a lot of anecdotal evidence telling me these banks aren’t all that anxious to sell [their distressed assets to the partnership],” he says. Hensarling argues that the Financial Accounting Standards Board’s decision to relax mark-to-market rules has removed the incentive for banks to sell distressed assets at fire-sale prices, to say nothing of private investors’ willingness to submit to compensation caps if they participate. “I’m not sure you’re going to have a lot of takers for this plan.” I don’t mean to exaggerate the divergence of views here. Both men are opposed to the massive stimulus package, the $3.6 trillion budget, the use of Fannie and Freddie to subsidize irresponsible lending, etc. Both think that executive-pay caps have undermined the administration’s ability to work with Wall Street, and both believe that Geithner would be wrong to refuse to let banks repay their TARP funds. Nevertheless, it will be difficult for the GOP to put forward a strong alternative to TARP when it lacks internal agreement over whether TARP is working or has a chance to work. The administration appears to have pinned all its hopes on TARP. It has laid out no specifics as to what it will do if the stress tests that regulators are performing on the nation’s biggest banks reveal one or more of them to be insolvent. It can’t go back to Congress for more TARP money. And converting the government’s preferred shares into common equity won’t be sufficient. Republicans should be prepared to push for the orderly restructuring of insolvent banks as an alternative to endless subsidization. On this, there might be more agreement than on the efficacy of TARP. “People who care about limited government are going to be cautious about how much power and what kind of power is given to whatever regulatory authority is created to resolve financial-service holding companies and non-bank financial institutions,” Sununu says, “but I don’t think that will prevent them from putting that authority into place. I think there’s pretty broad recognition that it would help to have an orderly way to wind down these institutions.” With regard to the creation of a new resolution authority, Hensarling says, “I’m open to that, but I haven’t quite been convinced that our bankruptcy laws are inadequate to the task.” What’s more, he doesn’t understand why we can’t use existing tools to force insolvent firms into receivership. “The biggest user of taxpayer funds that fits that bill is AIG, and I believe that the federal government has the power to place them into receivership today,” Hensarling says. “Also, it could be a condition of any future TARP funding. You have to agree that the federal government has the ability to place you into receivership.” The Obama administration has botched its plan to handle insolvency in the banking sector. Republicans have a chance to push for an alternative that lets failed firms fail. The TARP oversight panel, sans subpoena power, serves as little more than a bully pulpit from which to call for change. Sununu and Hensarling have an opportunity to lead Republicans — and to call for an end to the bailout era. – Stephen Spruiell is a National Review Online staff reporter.