While lawmakers, bank CEOs and the general public love to hate the government’s controversial Troubled Asset Relief Program, it’s clear the bailout deserves at least some credit for preventing a financial collapse of epic proportions last fall.

At the same time, TARP’s eventual legacy will hinge on whether or not unintended consequences like inflation and moral hazard eventually emerge.

“You have to give them credit for stemming the crisis. That had to be the top priority. On that part they will get a good grade. The other part is totally up for grabs,” said Dean Baker, co-director of the Center for Economic Policy and Research.

TARP was designed as a way for the government to respond to the worst financial crisis since the Great Depression. While far from perfect, many agree that the $700 billion bailout prevented an even deeper economic contraction.

“At the end of the day it was pretty clear that the incremental provider of capital really was the U.S. government. You had as close to a market failure as any of us can remember,” said Craig Peckham, equity trading strategist at Jefferies & Co.

‘A Moment of Panic’

Originally intended (and named) as a vehicle to buy banks’ toxic mortgage assets, the TARP plan nearly never came to fruition. Amid steep opposition, particularly from Republicans, the House voted down TARP on Sept. 29.

Underscoring the level of fear felt during that time, the Dow Jones Industrial Average plummeted 778 points in the aftermath -- its worst one-day point loss ever.

“There is a significant lack of confidence in not only the U.S. political system, but the U.S. financial system right now. Something needs to happen…and within a day or two,” Michael James, senior equity trader at Wedbush Morgan Securities, told FOX Business at the time.

Eventually Congress passed TARP but it quickly became apparent that buying toxic assets would take too long. Hank Paulson, the bailout’s architect and the Treasury Secretary at the time, instead to chose to inject cash directly into banks.

“TARP was made in a moment of panic. Unfortunately that panic was not just in financial markets but also the policy makers. I think it really showed,” said Adolfo Laurenti, senior economist at Mesirow Financial.

In the weeks and months after TARP was implemented, the meltdown on Wall Street slowed and strains in the credit markets eased, allowing banks to lend to each other and to consumers.

“When TARP was passed, there was the sense of imminent doom and gloom and that the economy was on the verge of a catastrophe,” said Laurenti. “In terms of psychology and expectations, it worked.”

If regulators hadn’t intervened, many believe the crisis would have had an even larger impact on the real economy. For example, perfectly healthy companies may have had trouble paying their employees because of their reliance on the commercial paper markets, which had frozen during the crisis.

“We’d be sitting here with a 21st-century economy but 15th-century methods of payment,” said Baker.

Laurenti echoed that sentiment, saying: “It would have created a domino effect through the economy -- something we haven’t experienced since the ‘30s. We would have seen much deeper damage to the economy and much more uncertainty.”

Not Just TARP

While TARP receives all the headlines, the program was one of many initiatives unveiled by regulators last year. At the same time Paulson was injecting cash into banks, the Federal Deposit Insurance Corp. raised its insurance limits and guaranteed debt sold by banks -- and the Federal Reserve established a slew of confusing programs aimed at unfreezing the credit markets.

“Collectively these measures were sufficient to stem the panic. It wouldn’t be right to say it was all TARP,” said Baker.

Unintended Consequences

The final chapter of TARP can’t be written until it becomes clear what the hidden costs of the bailout are.

“We’ve had glimpses of the world created by TARP. We’re still not sure if we like that world, but most likely we will not,” said Laurenti.

Specifically, some are worried about moral hazard, the idea that a lot of risky behavior was essentially rewarded, reinforcing that behavior down the line.

And even while banks rush to repay their TARP cash, it’s clear many companies have come under increasing pressure from lawmakers and officials in Washington. For example, some were skeptical last month as Chrysler’s TARP creditors were more willing to slash the auto maker’s debt than the lenders that weren’t bailed out.

“They will do whatever it takes to please their new owners,” said Laurenti.

Also, years of high inflation due to the bailouts could hinder an economic recovery.

“If the premise is that the economy improves and we’re back into a growth environment, I think that will probably heal a lot of the wounds. But if the price of TARP ends up being an overly indebted U.S. Treasury and a Federal Reserve balance sheet that’s too large, it’s going to take some of the shine off the success,” said Peckham.