TARP funds are monies utilized by the United States Treasury during the 2008 financial crisis in an attempt to stabilize the American economy. These funds were used to rescue financial institutions which were deemed “too big to fail,” out of concern that failure of major financial institutions could plunge the American economy into a depression. TARP funds were only one aspect of the government's financial rescue plan, but they were the most significant in a monetary sense, with $700 billion United States Dollars (USD) devoted to TARP.
These funds were part of a larger bill known as the Emergency Economic Stabilization Act (EESA), passed in October 2008 and signed into law by President George Bush. The Act created the Troubled Asset Relief Program (TARP), a program which was designed to get so-called toxic assets off the books of major banks. These assets included things like mortgage-backed securities, and were deemed impossible to value due to the fluctuations of the market. Because banks could not buy and sell these securities, they were becoming increasingly illiquid, and a credit crunch was beginning to emerge as lending between banks ground to a halt. TARP funds were designed to address this problem by purchasing these assets, injecting banks with liquidity so that they could start lending again.
President Bush and Secretary of the Treasury Henry Paulson announced a number of programs involving TARP funds after Congress rushed the EESA through, and the direction of the program radically changed course several times as 2008 ground to a close. In 2009, President Barack Obama took office, appointing Timothy Geithner as the Secretary of the Treasury and implementing new programs for TARP funds. Some of the programs for which TARP funds were used included foreclosure abatement initiatives designed to keep people in their homes, loans to the American automobile industry, and assistance to insurance giant American International Group (AIG).
The use of TARP funds was highly controversial at times. Taxpayers were concerned that their money would not be used wisely, although the Treasury suggested that once the economy stabilized, it could sell the toxic assets it held at a profit. Many taxpayers were also angered by the hefty executive bonuses paid by banks which received TARP funds, forcing the government to rush through a program which would monitor and restrict salaries and bonuses for institutions receiving TARP funds. While several institutions paid back the funds they received in a timely fashion, many others dragged their heels, and economists suggested that the government was subsidizing the American economy at taxpayer expense.
By Mary McMahon
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a America Explained researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.