The TARP Bailout: What Are Its Benefits?
Article by Anna Woodward
In October of 2008, President Bush signed a piece of legislature designed to address the nation’s mortgage crisis. The Troubled Asset Relief Program, commonly known as the TARP bailout, enabled the American government to buy assets and equity from financial institutions. It was theorized that the American government would strengthen its financial sector with what was expected to be an investment of 6 billion. As of October 2010, the American government has regained almost 0 billion of its investment, with an estimated outstanding cost of around billion. Companies like GMC, American Express, AIG, Bank of America, and Citigroup have repaid the US Treasury’s stake in their organization.
There are a variety of types of assets that the United States government can purchase through the TARP bailout. These include a wide variety of residential and commercial mortgages. One of the only stipulations of the legislation is that the purchase of the “troubled asset” must promote financial market stability. As such, banks and other financial institutions can unload certain assets to the government and improve their liquidity, stabilize their balance sheets, and prevent further drastic financial losses.
Companies that participated in the program were relatively autonomous and unaccountable for their plans for the money received from the United States government. As such, a number of potential fraud cases came to light when it was discovered that some companies were misusing or misappropriating the funds. As of January 2010, there were 86 criminal and civil investigations into companies and individuals responsible for the money in question.
As of October 2010, new information has been made available that shows the TARP bailout has actually gained billion in profits. Two-thirds of the total funds borrowed to banks and other organizations have been fully paid back. While the American public may have been against the program when it was first introduced, it appears to have been financially wise in the long run. This 8 percent return on investment is much greater than the 3 percent return on treasury bonds during the same period. The taxpayers’ money will come back with gains in a comparatively short period of time.
Those against the TARP bailout program claim that the American government may have avoided financial collapse but has not fixed any of the underlying problems that brought us to that near-disaster in the first place. The foundations of the financial crisis still have not been addressed so that we can be sure not to make the same mistakes again. However, an 8 percent return in two years is an impressive figure and one that deserves discussion.
Many politicians that supported the TARP bailout were highly criticized and even suffered loss of jobs and reputation. Many taxpayers blamed big banks and big business for the near-collapse in the first place, even though politicians took most of the heat. In the end it doesn’t help to say “I told you so,” but supporters of the program must feel justified in at least a little satisfaction.
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