The Five Rescue Programs of TARP
The primary goal of the TARP program was to rescue banks. By the conclusion of the program, it had been utilized in five areas: the automotive industry, banking, credit, housing, and insurance.
Capital Purchase Program (Banks)
On October 14, 2008, the Treasury Department used $250 billion of TARP funds to launch the Capital Purchase Program (CPP). The U.S. government then purchased preferred shares in eight banks: Bank of America/Merrill Lynch, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley, State Street, and Wells Fargo.
AIG Insurance Company
On November 10, 2008, the Treasury Department used TARP to rescue the giant insurance company American International Group (AIG). The Federal Reserve had already loaned $112 billion through the system, raising the total to $152 billion by purchasing $40 billion in preferred shares of AIG. This allowed AIG to pay off its credit default swaps and avoid bankruptcy.
Credit and Housing
On November 23, 2008, the Treasury Department loaned the Federal Reserve $20 billion in TARP funds. The Federal Reserve established the Term Asset-Backed Securities Loan Facility (TALF). The Federal Reserve loaned TALF funds to its member banks so they could continue to provide credit to homeowners and businesses. By April 2013, all funds were repaid, plus $3.6 billion in interest.
Automotive Industry
In December 2008, President George W. Bush approved the use of TARP funds to rescue three major automotive companies: General Motors, Chrysler, and Ford. Executives warned that General Motors and Chrysler were facing bankruptcy and the loss of a million jobs. The rescue lasted $80.7 billion from January 2009 to December 2014. The Treasury Department recovered everything except $10.2 billion.
Why Didn’t TARP Cost Taxpayers?
By 2018, TARP did not cost taxpayers anything. Instead, the Treasury Department received $3 billion more than the amount it disbursed, which was $439.6 billion. Of this amount, $376.4 billion was repaid by the banks, automotive companies, and AIG.
Why Was TARP Needed?
The goal of TARP was to stop the panic that swept through Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac, and AIG. Without government intervention, the bankruptcy of those firms would have led to the insolvency of more companies.
Why Did Paulson’s Original TARP Idea Fail?
The original idea of Treasury Secretary Paulson was to create TARP as a reverse auction. The idea was for banks to bid on their bad loans to the Treasury Department, and Treasury officials would choose the lowest bid.
The Problem with TARP for Homeowners
Why didn’t more people benefit from the HAMP and HARP programs? If more people had benefited from these programs, billions of dollars would have been injected into the economy, helping millions of homeowners avoid foreclosure.
The problem lay with the banks. Banks selectively chose applicants and refused to consider those with a lower stake in their homes. The banks were too risk-averse, which prevented the programs from working.
Source: https://www.thebalancemoney.com/tarp-bailout-program-3305895
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