The The Troubled Asset Assistance Program ( TARP ) is a US government program to buy toxic assets and equities from financial institutions to strengthen its financial sector signed into law by President George W Bush on 3 October 2008. This is a component of government measures in 2008 to address the subprime mortgage crisis.
The TARP program initially authorized spending of $ 700 billion. The Emergency Economic Stabilization Act of 2008 created the TARP program. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law in 2010, reduced the number endorsed to $ 475 billion. On October 11, 2012, the Congressional Budget Office (CBO) stated that total spending would be $ 431 billion, and estimates the total cost, including a grant for a mortgage program that has not yet been created, would be $ 24 billion.
On December 19, 2014, the US Treasury sold the remaining holdings of Ally Financial, which essentially ended the program. TARP recovered $ 441.7 billion from $ 426.4 billion invested, generating a profit of $ 15.3 billion.
Video Troubled Asset Relief Program
Destination
TARP allows the US Treasury to buy or insure up to $ 700 billion of "troubled assets," defined as "(A) residential or commercial liabilities to be purchased, or other instruments based on or related to the mortgage, that in each case originated or issued on or before March 14, 2008, purchases determined by the Secretary promote financial market stability, and (b) other financial instruments that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determine the necessary purchases to promote financial market stability , but only at the time of sending that resolve, in writing, to the appropriate congressional committee. "
In short, it allows the Treasury to purchase illiquid assets that are difficult to quantify from banks and other financial institutions. Targeted assets can be secured debt obligations, which are sold in the booming market until 2007, when they are exposed to a widespread seizure on an underlying loan. TARP is intended to increase the liquidity of these assets by purchasing them using secondary market mechanisms, thereby enabling participating institutions to stabilize their balance sheets and avoid further losses.
TARP does not allow banks to recoup losses already incurred on troubled assets, but officials hope that once the trades of these assets are continued, their prices will stabilize and ultimately increase in value, resulting in profits for both participating banks and the Treasury itself. The concept of future profits from troubled assets comes from hypotheses in the financial industry that these assets are oversold, since only a fraction of all mortgages are default, while relative price reductions represent a loss of a much higher rate of default.
The 2008 Emergency Economic Stabilization Act (EESA) requires financial institutions to sell assets to TARP to issue equity warrants (a kind of guarantee that entitles the holder to buy shares in a company that issues securities at a price), or equity or senior debt. securities (for companies not listed on the exchange) to the Treasury. In the case of warrants, the Treasury shall only receive a warrant for a non-voting share, or shall agree not to vote on shares. This measure is designed to protect the government by giving the Ministry of Finance possible gains through the ownership of new shares in these institutions. Ideally, if financial institutions benefit from government assistance and restore their previous power, the government will also be able to benefit from their recovery.
Another important goal of TARP is to encourage banks to re-lend at levels seen before the crisis, either to each other or to consumers and businesses. If the TARP can stabilize the bank's capital ratio, then theoretically they can increase lending rather than hoarding cash to reduce future unexpected losses from troubled assets. The increase in loans is equivalent to "loosening" credit, which the government hopes will restore order to financial markets and increase investor confidence in financial institutions and markets. When banks gain an increase in loan trust, interbank lending rates (interest rates at which banks lend to each other in the short run) will decline, further facilitating lending.
TARP will operate as a "revolving purchase facility." The Treasury will have a set spending limit, $ 250 billion at the start of the program, by which it will buy the asset and then sell or hold the asset and collect the coupon. Money received from sales and coupons will return to the pool, facilitating the purchase of more assets. The initial $ 250 billion could be raised to $ 350 billion over presidential certification to Congress that the increase is necessary. The remaining $ 350 billion may be released to the Treasury on a written report to the Congress of the Treasury with details of his plans for money. Congress then has 15 days to vote to reject the increase before the money will automatically be released. The first $ 350 billion was released on October 3, 2008, and Congress decided to approve a second $ 350 billion release on January 15, 2009. One way that TARP money is spent is to support the "Making Homes Affordable" plan, implemented on March 4, 2009 , using TARP money by the Ministry of Finance. Because a "risky" mortgage is defined as a "problem asset" under TARP, the Treasury has the power to implement the plan. Generally, it provides refinancing for a mortgage held by Fannie Mae or Freddie Mac; During the Federal's takeover of both companies, the Federal government provided $ 317 billion in assets, dwarfing the TARP bailout program. Personal mortgages will be eligible for other incentives, including a favorable five-year loan modification.
The authority of the US Treasury to establish and manage the TARP under the new Financial Stability Office was made into law October 3, 2008, the result of an initial proposal finally endorsed by Congress as HR 1424, imposing a 2008 Emergency Economic Stabilization Act and several other actions.
On October 8, the UK announced their bank rescue package consisting of funding, debt guarantees and investing into banks through preferred shares. The model is followed by all of Europe, as well as the US Government, which on October 14 announced a $ 250bn (Â £ 143bn) Capital Purchase Program to buy shares in various banks in an attempt to restore confidence. in this sector. The money comes from the $ 700bn Assisted Asset Relief Program.
Maps Troubled Asset Relief Program
Timeline changes to TARP program
On October 14, 2008, Treasury Secretary Henry Paulson and President Bush separately announced the revised TARP program. The Treasury announced their intention to buy stocks and senior-choice warrants from nine of America's largest banks.
To qualify for the program, the Ministry of Finance requires participating institutions to meet certain criteria, including: "(1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of financial institutions; (2) clawback is required of bonuses or compensation incentives paid to senior executives based on statements of profits, gains or other criteria which then proved to be materially inaccurate; (3) a ban on financial institutions to make gold parachute payments to senior executives under the provisions of the Internal Revenue Code; ) agreement not to cut for executive compensation tax purposes more than $ 500,000 for every senior executive. "The Treasury also bought preferred shares and warrants from hundreds of smaller banks, using the first $ 250 billion allocated to the program.
The first allocation of TARP money is mainly used to purchase preferred stock, which is similar to the debt due paid before the shareholders of public equity. This has led some economists to argue that the plan may not be effective in encouraging banks to lend efficiently.
In an initial plan presented by Paulson, the government will buy toxic assets in insolvent banks and then sell them at auction to private investors and/or companies. The plan was scraped when Paulson met with British Prime Minister Gordon Brown who came to the White House to attend an international summit on the global credit crunch. Prime Minister Brown, in a bid to ease credit crunch in Britain, planned a three-step package consisting of funding, debt guarantees and investing in banks through preferred stock. The goal is to directly support bank solvency and funding; in the eyes of some economists, effectively nationalize many banks. This plan seems attractive to the Minister of Finance because it is relatively easier and seems to increase lending more quickly. The first half of asset purchases may be ineffective in making banks lend again because they are reluctant to take on loan risks as before with low loan standards. To make matters worse, overnight loans to other banks stop relatively because banks do not trust each other to be careful with their money.
On November 12, 2008, Paulson indicated that reviving the securitization market for consumer credit would be a new priority in the second allotment.
On December 19, 2008, President Bush used his executive authority to declare that TARP funds could be spent on any program that Paulson considered necessary to reduce the financial crisis.
As of December 31, 2008, the Ministry of Finance issued a report reviewing Section 102, Asset Financing Asset Financing Fund, also known as "Assurance Guarantee Program." The report indicates that the program is unlikely to be made "widely available."
On January 15, 2009, the Ministry of Finance issued a provisional final rule for reporting requirements and record keeping under the executive compensation standard of the Capital Purchase Program (CPP).
On January 21, 2009, the Ministry of Finance announced new regulations on disclosure and mitigation of conflicts of interest in TARP contracts.
On February 5, 2009, the Senate approved a change to TARP prohibiting companies from receiving TARP funds from paying bonuses to their top 25 paid employees. The measure was proposed by Christopher Dodd of Connecticut as an amendment to a $ 900 billion economic stimulus action that is then awaiting passage.
On February 10, 2009, the newly confirmed Finance Minister Timothy Geithner outlined his plans to spend the remaining $ 300 billion or more in TARP funds. He intends to direct $ 50 billion towards seizure mitigation and use the rest to help fund private investors to buy toxic assets from banks. However, this highly anticipated speech coincided with a nearly 5 percent decline in S & amp; P 500 and was criticized for lack of detail.
On March 23, 2009, Geithner announced a Public Private-Private Investment Program (P-PIP) to buy toxic assets from bank balance sheets. Major stock market index in the United States rallied on the day of the announcement rose by more than six percent with the shares of bank shares leading the way. P-PIP has two main programs. The Legacy Loans program will try to buy housing loans from bank balance sheets. The Federal Deposit Insurance Corporation (FDIC) will provide non-recourse loan guarantees up to 85 percent of the purchase price of legacy loans. Private sector asset managers and the US Treasury will provide the remaining assets. The second program is called the old securities program, which will purchase residential mortgage-backed securities (RMBS) initially assessed AAA and commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) rated AAA. The funds will come in many instances with equal portions of US Treasury Taro money, private investors, and from loans from the Federal Asset Backed Securities (TALF) Securities Loan Facility. The initial size of Public Private Partnership Investment is projected to be $ 500 billion. Economist and Nobel Prize winner Paul Krugman has been very critical of the program on the grounds that non-recourse loans lead to hidden subsidies that will be broken down by asset managers, bank shareholders and creditors. Banking analyst Meredith Whitney argues that banks will not sell bad assets at fair market value because they are reluctant to take over assets. Economist Linus Wilson, a commentator who frequently commented on TARP-related matters, also pointed out excessive misinformation and false analyzes of US auction plans for toxic assets. Removing toxic assets will also reduce the volatility of bank stock prices. This lost volatility will hurt the stock price of depressed banks. Therefore, the bank will only sell toxic assets above market price.
On April 19, 2009, the Obama administration outlined the conversion of Bank Bailout to Equity Shares.
Administration structure
This program is run by the new Financial Stability Office of the Ministry of Finance. According to a speech made by Neel Kashkari, the funds will be divided into the following administrative units:
- Mortgage-backed securities purchase program: This team identifies the problematic assets to be purchased, from whom to buy, and which purchasing mechanisms best suit our policy objectives. Here, we designed a detailed auction protocol and will work with vendors to implement the program.
- The overall loan purchase program: Regional banks are typically clogged with all mortgage housing loans. The team is working with bank regulators to identify what types of loans should be purchased first, how to assess them, and which purchasing mechanisms best suit our policy objectives.
- Insurance program: We are creating a program to ensure that the assets are in trouble. We have some innovative ideas on how to build this program, including how to insure mortgage backed securities and overall loans. At the same time, we recognize that there may be other great ideas out there that we can take advantage of. Therefore, on Friday we submit to the Federal Register a Request for Public Comments to collect the best ideas about the Setup options. We needed a response within fourteen days so we could consider it quickly, and start designing the program.
- The equity purchase program: We designed a standard program to buy equity in various financial institutions. Like any other program, the equity purchase program will be voluntary and designed with attractive terms to encourage the participation of a healthy institution. It will also encourage companies to raise new private capital to supplement public capital.
- Preservation of home ownership: When we buy mortgages and mortgage-backed securities, we'll look for every possible opportunity to help homeowners. This goal is consistent with other programs - such as HOPE NOW - aimed at working with borrowers, counselors and servicers to keep people in their homes. In this case, we work with the Department of Housing and Urban Development to maximize this opportunity to help as many homeowners as possible while also protecting the government.
- Executive compensation: The law sets essential requirements on executive compensation for companies participating in TARP. The team is working hard to determine the requirements for financial institutions to participate in three possible scenarios: One, purchase of problematic asset auction; two, an extensive equity or direct purchasing program; and three, a case of intervention to prevent future failures of a systemically significant agency.
- Compliance: The law establishes important oversight and compliance structures, including establishing a Supervisory Board, participation in the place of the General Accounting Firm and the establishment of a Special Inspector General, with comprehensive reporting requirements.
Eric Thorson is the Inspector General of the US Treasury and is currently in charge of TARP surveillance but has expressed concern about the difficulty of overseeing complex programs precisely in addition to his routine responsibilities. Thorson referred to TARP's surveillance as "chaos" and then clarified this to say "The word 'chaos' is a description of the difficulties my office will have in providing the right TARP level of supervision while addressing its ever-increasing workload, including auditing from banks and banks a certain failure at the same time that an effort is being made to nominate a special inspector general. "
In November 2008, Neil Barofsky was nominated as Inspector General of the Department of Special Finance with a firm role in overseeing TARP. Barofsky is undergoing a senate confirmation hearing from the Senate Finance Committee.
The Treasury retains the law firm Squire, Sanders & amp; Dempsey and Hughes, Hubbard & amp; Reed to assist in program administration. Accounting support and internal control services have been contracted from PricewaterhouseCoopers and Ernst and Young under the Federal Supply Schedule.
Criteria for participation
The Criteria Act for participation states that "financial institutions" will be included in the TARP if they are "established and regulated" under United States law and if they have "significant operations" in the United States. The Ministry of Finance needs to determine what institutions will be included in the terms "financial institution" and what will be "significant operations." Companies that sell their bad assets to the government must provide guarantees so that the government will benefit from the company's growth in the future. Certain institutions seem to be guaranteed their participation. These include: US Bank, US branch of a foreign bank, US savings bank or credit unions, US broker-dealer, US insurer, US mutual fund or other US registered investment company, US employee's eligible tax retirement plan and corporate holding bank.
The President must file legislation to cover government losses on the fund, using "small, broad-based fees on all financial institutions." To participate in the bailout program, "... the company will lose certain tax benefits and, in some cases, limit executive payments, and 'golden parachute' limits and require non-collected bonuses to be returned." The Fund has a Supervisory Board so the US Treasury can not act arbitrarily. There is also an inspector general to protect against waste, fraud, and abuse.
The CAMELS rating (US supervisory rating used to classify 8,500 state banks) is used by the United States government in response to the 2008 global financial crisis to help decide which banks are providing special assistance and which are not part of the capitalization program legalized by the Act Emergency Economic Stabilization in 2008. This is used to classify 8,500 state banks into five categories, where a rating of 1 means they are likely to be assisted and 5 most likely not to be assisted. Regulators apply a short list of criteria based on the secret ranking system they use to measure this.
The New York Times states: "The criteria used to select who gets the money seems to set the stage for consolidation in the industry by supporting those most likely to survive" because the criteria seem financially favorable to the best banks and banks too great to be allowed to fail. Some lawmakers are angry that the capitalization program will end the destruction of banks in their districts. However, The Wall Street Journal suggests that some MPs are actively using TARP to pour money into weak regional banks in their districts. Academic studies have found that banks and credit unions located in main congressional districts are more likely to win TARP money.
The known aspect of the capitalization program "suggests that the government can freely define what constitutes a healthy institution.The profitable banks over the past year are the most likely to receive capital.Banks that have been losing money over the past few years.Years, however, must pass additional tests. [...] They also asked whether banks have enough capital and reserves to withstand severe losses to construction loan portfolios, bad debts and other troubled assets. "Some banks receive capital on the understanding that banks will seek merger partners. To receive capital under the program bank is also "necessary to provide a special business plan for the next two or three years and explain how they plan to spread the capital."
Assets qualifying and asset valuation
TARP allows the Treasury to purchase "troubled assets" and any other assets purchased by the Treasury as "essential" for further economic stability. Troubled assets include real estate and mortgage-related assets and securities based on those assets. These include both the mortgage itself and the various financial instruments created by collecting mortgage groups into one security to be bought in the market. This category may include foreclosed properties as well.
Real estate and mortgage-related assets (and securities by type of asset) qualify if they are originated (created) or issued on or before March 14, 2008, the date of the Bear Stearns bailout.
One of the most difficult problems facing the Treasury in managing TARP is the fixing of problematic asset prices. The Treasury must find a way to determine the price of a very complex and sometimes unwieldy instrument. In addition, prices should strike a balance between efficiently using public funds provided by the government and providing adequate assistance to financial institutions that need them.
The law encourages the Department of Finance to design programs using market mechanisms as far as possible. This led to the expectation that the Treasury would use a "reverse auction" mechanism against the price asset. The reverse auction means that the bidder (ie, potential seller of the troubled asset) will bid to the Treasury for the right to sell certain types of assets. The selling price will be the lowest price at which the offer will give the required amount of goods. Theoretically, the system creates a market price because bidders will want to sell at the highest price they can get, but they also want to make sales, so they have to set a price low enough to compete. The Treasury is required to publish its method of fixing prices, buying, and valuing problem assets no later than two days after the purchase of their first asset.
The Congressional Budget Office (CBO) uses procedures similar to those specified in the Federal Credit Reform Act (FCRA) to assess assets purchased under TARP.
As of June 30, 2012, $ 467 billion has been allocated, and $ 416 billion was spent, according to a literature review of TARP. Among the money made, including:
- $ 204.9 billion to buy a bank equity stake through the Capital Purchase Program
- $ 67.8 billion to buy preferred shares from American International Group (AIG), then among the top 10 US companies, through a program for a Significantly Systematic Penitentiary;
- $ 1.4 billion to support any losses that may be incurred by the Federal Reserve Bank of New York under a Time Asset Backed Securities Facility ;;
- $ 40 billion in purchases of Citigroup and Bank of America shares ($ 20 billion each) through the Target Investment Program ($ 40 billion spent). All that money has been returned.
- $ 5 billion in loan guarantees for Citigroup ($ 5 billion). The program was closed, without payment, on December 23, 2009.
- $ 79.7 billion in loans and capital injections to automakers and their financing arm through the Automotive Industry Financing Program.
- $ 21.9 billion to buy "toxic" mortgage-related securities.
- $ 0.6 billion of capital for banks in the Community Capital Capital Initiative (CDCI) for banks serving disadvantaged communities.
- $ 45.6 billion for home owner foreclosure assistance. Only $ 4.5 billion has been spent at that time.
The Congressional Budget Office released its report in January 2009, reviewing transactions enforced via TARP. The CBO found that as of December 31, 2008, transactions under TARP reached $ 247 billion. According to a CBO report, the Treasury has bought $ 178 billion of preferred stock and warrants from 214 US financial institutions through its Capital Purchase Program (CPP). This includes the purchase of $ 40 billion of preferred stock at AIG, $ 25 billion of preferred stock in Citigroup, and $ 15 billion in preferred stock at Bank of America. The Treasury also agreed to lend $ 18.4 billion to General Motors and Chrysler. The Treasury, FDIC and Federal Reserve have also agreed to secure Citigroup's $ 306 billion asset portfolio.
The CBO also estimates subsidized fees for transactions under TARP. The subsidy cost is defined as, in general, the difference between what the Treasury pays for investment or lends to the company and the market value of the transaction, in which the assets in question are assessed using procedures similar to those specified in the Federal Credit. Reform Act (FCRA), but adjust for market risk as specified in EESA. The CBO estimates that the subsidy cost of $ 247 billion in transactions prior to December 31, 2008 amounts to $ 64 billion. On August 31, 2015, TARP is projected to cost about $ 37.3 billion in total - much smaller than the $ 700 billion originally endorsed by Congress.
The TARP report to Congress in May 2015 states that $ 427.1 billion has been disbursed, the total result on April 30, 2015 is $ 441.8 billion, exceeding the disbursement of $ 14.1 billion, although this includes $ 17.7 billion in non AIG shares -TARP. The report estimates a net cash outflow of $ 37.7 billion (excluding non-TARP AIG shares), based on the assumption that the TPR (Smallest Funding Fund, Initial Funding Financing and FHA refinancing) housing program fund is fully taken. Debts are still outstanding, some of which have been converted into common stock, from just under $ 125 million to $ 7000. The amounts lent to entities that have been entered, and in some cases arising from bankruptcy or curators are provided. Additional amounts have been abolished, for example, the original Treasury investment of $ 854 million in Old GM.
The May 2015 report also details other costs of the program, including $ 1.157 billion "for financial and legal company agents" $ 142 million for personnel services, and $ 303 million for "other services".
Participants
The banks that agreed to receive preferred stock investments from the Treasury include Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & amp; Co., Bank of America Corp. (who recently agreed to buy Merrill Lynch), Citigroup Inc., Wells Fargo & amp; Co., Bank of New York Mellon and State Street Corp. Bank of New York Mellon will serve as a custodian master who oversees the fund.
The US Treasury maintains an official list of TARP recipients and results to the government on the TARP website. TARP beneficiaries include the following:
From these banks, JPMorgan Chase & amp; Co., Morgan Stanley, American Express Co., Goldman Sachs Group Inc., US Bancorp, Capital One Financial Corp., Bank of New York Mellon Corp., State Street Corp., BB & T Corp, Wells Fargo & amp; Co and Bank of America repay TARP money. Most banks repay TARP funds using capital gained from issuing equity and debt securities that are not guaranteed by the federal government. PNC Financial Services, one of the few profitable banks without TARP money, plans to repay their shares in January 2011, by building cash reserves rather than issuing securities. However, the PNC reversed course on February 2, 2010, by issuing $ 3 billion in shares and $ 1.5-2 billion in senior notes to pay back its TARP fund. PNC also raised funds by selling its Global Investment Services division to crosstown rivals The Bank of New York Mellon.
In January 2012, reviewed, it was reported that AIG still has about $ 50 billion, GM about $ 25 billion, and Ally about $ 12 billion. Break even in the first two companies would be $ 28.73 per share compared to the current share price of $ 25.31 and $ 53.98 compared to the current share price of $ 24.92, respectively. Ally is not publicly traded. 371 owed banks included Region ($ 3.5 billion), Zions Bancorporation ($ 1.4 billion), Synovus Financial Corp. ($ 967.9 million), Popular, Inc. ($ 935 million), First BanCorp San Juan, Puerto Rico ($ 400 million) and M & amp; T Bank Corp. ($ 381.5 million).
TARP scams
To date, some in the financial industry have been accused of not using borrowed dollars for the intended reasons. Others further abused investors after the TARP legislation was passed by telling investors that their money was invested in a federal TARP financial bailout program and other securities that did not exist. Neil Barofsky, the Special Inspector General for the Troubled Asset Assistance Program (SIGTARP), told lawmakers: "Inadequate supervision and inadequate information about what the company does with money leaves open programs for fraud, including conflicts of interest facing fund managers , collusion between participants and vulnerability to money laundering.
In its October 2011 quarterly report to Congress, SIGTARP reported "more than 150 ongoing criminal and civil investigations." SIGTARP has reached a criminal sentence of 28 defendants (19 have been sentenced to jail), and civil cases named 37 people and 18 companies/legal entities as defendants. It has recovered $ 151 million, and prevented $ 553 million from going to Colonial Bank, which failed.
The first TARP fraud case brought by the SEC on January 19, 2009, against Nashville-based Gordon Grigg and his company ProTrust Management. The latest occurred in March 2010, with the FBI claiming Charles Antonucci, former president and chief executive of Park Avenue Bank, made a false statement to regulators in an effort to earn about $ 11 million from the fund.
Similar historical federal banking programs
The nearest parallel action taken by the federal government was an investment made by the Financial Corporations Reconstruction (RFC) in the 1930s. RFC, an agent hired during the reign of Herbert Hoover in 1932, lent to distressed banks and bought shares in 6,000 banks, totaling $ 1.3 billion. The New York Times, citing financial experts on October 13, 2008, notes that, "Similar efforts today, in proportion to the current economy, will be about $ 200 billion." When the economy has stabilized, the government sells its bank shares to private investors or banks, and is estimated to have received approximately the same amount invested previously.
In 1984, the government took 80 percent stake in the bank which is currently the seventh largest bank, Continental Illinois Bank and Trust. Continental Illinois lends to oil and service drilling companies in Oklahoma and Texas. The government is estimated to have lost $ 1 billion as Continental Illinois, which eventually became part of Bank of America.
$ 24 billion for an estimated TARP subsidy cost less than the government's cost for savings and loan crises in the late 1980s, although the cost of subsidies excludes the costs of other bailout programs (such as the Federal Reserve's Maiden Lane Transactions and the Federal takeover of Fannie Mae and Freddie Mac ). Crisis cost S & amp; L of 3.2 percent of GDP during the Reagan/Bush era, while the percentage of GDP in TARP costs is estimated to be less than 1 percent.
Controversy
TARP's main objective, according to the Federal Reserve, is to stabilize the financial sector by purchasing illiquid assets from banks and other financial institutions. However, the TARP effect has been widely debated because the purpose of the fund is not widely understood. A review of investor presentations and conference calls by executives from about two dozen US-based banks by The New York Times found that "few [banks] refer to loans as a priority." Moreover, the vast majority see this program as no string of livelihoods an embedded attribute that can be used to repay debt, acquire another business or invest for the future. "The article cited several bank chiefs stating that they see the money available for strategic acquisitions in the future rather than increasing lending to the private sector, whose ability to repay the loan was suspected. PlainsCapital chairman Alan B. White saw the cash infusion of the Bush administration as "opportunity capital," noting, "They did not say I should do something special with it."
In addition, while TARP funds have been granted to the parent company of the bank, the parent company uses only a fraction of the funds to recapitalize their bank subsidiary.
Many analysts speculate TARP funds could be used by stronger banks to buy weaker ones. On October 24, 2008, PNC Financial Services received $ 7.7 billion in TARP funds, then just hours later agreed to buy National City Corp for $ 5.58 billion, a number considered cheap. Despite ongoing speculation that more TARP funds could be used by big-but-weak banks to devour small banks, in October 2009, no more takeover took place.
The Senate Congressional Supervisory Panel created to oversee TARP concluded on January 9, 2009: "Specifically, the Panel does not see evidence that the US Treasury has used TARP funds to support the housing market by avoiding preventable foreclosures." The panel also concluded that "Even though half the money has not been received by banks, hundreds of billions of dollars have been injected into the market with no proven effects on loans."
Government officials overseeing the bailout have recognized the difficulty in tracking money and in measuring the effectiveness of a bailout.
During 2008, the company that received $ 295 billion in bailout money has spent $ 114 million to lobby and campaign donations. Banks receiving bailout money have compensated their top executives nearly $ 1.6 billion in 2007, including salaries, cash bonuses, stock options, and benefits including personal use of jets and corporate drivers, home security, club state membership, and management professional money. The Obama administration has pledged to set a $ 500,000 limit for executive payments in companies receiving bailout money, directing banks to tie risks taken to reward workers by paying further in deferred shares. Graef Crystal, a former compensation consultant and author of "The Crystal Report on Executive Compensation," claims that the limits on executive salaries are "jokes" and that "they only allow companies to delay compensation."
In November 2011, a report showed that the amount of government guarantees increased to $ 7.77 trillion; However, lending to the bank is only a fraction of that amount.
One study found that typical white-owned banks were about ten times more likely to receive TARP money in CDCI programs than black-owned banks after controlling for other factors.
American Bankers Association attempts to remove TARP warrant
As of March 31, 2009, four banks of more than five hundred have returned their preferred stock obligations. None of the publicly traded banks have yet to repurchase their warrants owned by the US Treasury on March 31, 2009. Under the terms of the US Treasury investment, banks that refund can negotiate to buy back warrants at fair market value , or the US Treasury may sell warrants to third party investors as soon as possible. Warrants are call options that increase the number of shares outstanding if they are executed for profit. The American Bankers Association (ABA) has lobbied Congress to override government-owned warrants, calling them "heavy expenses." However, if the Goldman Sachs Capital Purchase Program order is representative, the Capital Purchase Program warrants are worth between $ 5 and $ 24 billion as of May 1, 2009. Cancel CPP warrants so as to amount to $ 5 to $ 24 billion in subsidies to the banking industry at government expense. While the ABA wants the CPP warrant to be abolished by the government, Goldman Sachs does not have that view. A Goldman Sachs representative was quoted as saying "We think that taxpayers should expect a reasonable return on their investment and hope to provide it when we are allowed to return TARP money."
See also
- UK bank rescue package
- Company prosperity
- Emergency Economic Stabilization Act of 2008
- Financial Crisis Responsibility Cost
- H.R. 1424
- Lemon's Socialism
- Liquidity crisis in September 2008
- Matthew Pendo
- NCUA Enterprise Stabilization Program
- Supervision of Troubled Asset Aid Program
References
Further reading
- Stewart, James B., "Eight Days: a battle to save the American financial system", The New Yorker , September 21, 2009.
- TARP's payment report is available here
External links
- FinancialStability.gov Official website
- Data and Tools Set for FinancialStability.gov in Data.gov
- "Stimulus.org" . Retrieved October 16th, 2012 . Ã, (List all the economic recovery measures, including from the TARP program.)
- Ericson, Matthew; She, Elaine; Schoenfeld, Amy. "Bailout Tracking $ 700 Billion". The New York Times . Retrieved January 9, 2009 . (List of recipients for funds allocated or distributed under the TARP program.)
- Zumbrun, Josh; et al. (October 14, 2008). "The Ownership Society". Forbes . New York. Ã, Injection analysis Government equity capital becomes bank.
- Nomi Prins: "Too Much Banking Banking" - video report by Democracy Now! September 15, 2009
Source of the article : Wikipedia
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