• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
 
Economic
SYNOPSES
short essays and reports on the economic issues of the day
2009
I
Number 20
T
he Emergency Economic Stabilization Act wassigned into law on October 3, 2008, and grantedthe U.S. Treasury broad powers to ensure financialmarket stability through the Troubled Asset Relief Program(TARP). The TARP authorized the purchase and insuranceof up to $700 billion of troubled assets from banks and waspassed with three goals: to stabilize financial markets, tosupport housing markets by preventing foreclosures andsupporting mortgage finance, and to minimize potentiallosses to taxpayers.The TARP was originally conceived to purchase troubledassets directly from banks. However, as quickly becameapparent, properly valuing these assets was extremely dif-ficult as a result of ongoing home mortgage foreclosures,defaults, and falling house prices. The financial turmoilintensified in the weeks following the bill’s passage, and tomove quickly, the U.S. Treasury established the CapitalPurchase Program(CPP), which became the centerpieceof TARP. The goal of the CPP was to recapitalize healthy banks by purchasing preferred shares of stock in banksinstead of purchasing their troubled assets.
1
The Treasury hoped to stabilize the financial markets and limit downsidefinancial risks to taxpayers via such recapitalization. Later,the TARP included investments in American InternationalGroup (under the Systemically Significantly FailingInstitutions [SSFIs] provision of TARP), the automotive
 
industry (General Motors, Chrysler, and their respectivefinancing arms), and targeted investments in Citigroupand Bank of America. The left column of the table belowsummarizes TARP distributions through April 3, 2009.The Emergency Economic Stabilization Act also createda Congressional Oversight Panel (COP) to evaluate theeffectiveness of the TARP. In their January 9, 2009, report,the COP highlighted four areas that they believe warrant-ed special attention. First, they asked the Treasury to reporthow banks are using their TARP funds. Second, the panelcalled for greater transparency and asset evaluation. Third,the panel suggested greater Treasury emphasis on prevent-ing foreclosures, and finally, they asked for better commu-nication of the overall TARP strategy.On February 10, 2009, Treasury Secretary Geithnerreleased details for the new Financial Stability Plan,which attempts to address some of the COP concerns by reallo-
What’s Under the TARP?
Craig P. Aubuchon,
Senior Research Associate
The Financial Stability Plan,initiated under the belief that“[t]here is more risk and greater costin gradualism than in aggressiveaction,” has several features.
 
TARP Allocations and Financial Stability Proposals
Troubled Asset Relief Program (
allocated 
)Amount ($ billion)Financial Stability Plan (
 proposed 
)Amount ($ billion)
Capital Purchase Program198.8Capital Assistance ProgramUnknownAmerican International Group40.0Homeowner Affordability and Stability Plan75.0CitigroupPublic-Private Investment Fund100.0 Targeted investment20.0Term Asset-Backed Securities Lending Facility100.0Asset guarantee5.0Bank of America20.0Automotive industry financing*24.8 Total308.6Total275.0NOTE: *Includes General Motors, Chrysler, and their respective financing divisions.
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...