Public Law 110-343 the Crisis Term Paper

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Conclusions -- Was TARP Necessary -- A five member Congressional committee echoed a number of criticisms regarding TARP that many consumers, academics, and fiscal analysts were considering. What exactly was the Treasury's strategy with the $700 billion dollars for the supposed bail out? How can Treasury explain the significant gaps in their ability to find hundreds of billions of taxpayer money? In a nutshell, it appears that the departments that control the money given by the Congress (from the American people) have no ability to ensure that the bailed out banks will do what was needed and lend money; have no real standards of measuring success of failure of the program; and for ignoring pointed and specific questions from Congress about their performance (M. Crittenden).

The fact that many of the institutions bailed out with TARP funds, funds from the American taxpayer, did not distribute these funds back into the economy to get the jump start in spending promised. Indeed, numerous examples abound that many companies used the money to buttress their balance sheet, pay executives, and in a few cases, even to fund company promotional events. Following the money often points to a club, cronyism if you will, of individuals who are connected at some political level, funding one arm of a company in order to protect that individual, or more accurately, that individuals portfolio, from damage or reduction (D. Ellis).

The bailout of Freddie Mac and Fannie Mae, for instance, is considered by some to be nothing more than a case study in crony capitalism.While this is a very conservative remark, echoing President Ronal Reagan's view that, "When government and business get in bed together, the taxpayer doesn't get any sleep." When asked about whether they thought the government would every bail them out if they got into financial trouble, Fannie and Freddie Executives were reluctant to comment. Fannie and Freddie provided "risk coverage for all the commercial lending institutions that extended credit where credit normally wouldn't have been extended. Why? Because politicians wanted to increase home ownership. The only way to do this was to remove the risk associate with some loans. Consequence, Fannie and Freddie 'bough' the bad loans and encouraged participating banks to go original more…. Nice thought…. Poor execution…. The road to h*&* was also paved with good intention (Scontras).

Still, some feel that TARP was necessary at the time, and criticizing it is like the Monday morning quarterback -- one already knows the score and can adjust the view to the results. Even President Obama promised that, on his watch, banks "will have to clearly demonstrate how taxpaer dollars result in more lending for the American taxpaer" and won't be allowed to pad bonuses or redecorate corner offices (Editorial).

If we assess what TARP was designed to do, though, we find that then Secretary Paulson indicated that lending had stopped because of toxis assets (really mortgage backed securities). Because banks did not know their actual value, the were reluctant to lend. Paulson argued for the $700 billion to purchase these toxic assets and allow the banks to have more solid balance sheets with which to base decisions upon. Paulson also, it appears, forced the nation's nine largest banks to issue stock to the Treasury department, but paid for with TARP money. In a set of strong-arming tactcs, Paulson told banks that didn't want to participate that others would, and if they didn't, it would define them as weaker than the others, and less desirable for future work (McCain).

Did the bailout program work? Again, without a blind, statistically valid experiement, it is hard to decide definitively. Had the government not stepped up to do something, Wall Street may have collapsed, indeed, the entire economy could've been in shambles instead of just minorly injured with scrapnel fire. In the time since the bailout consumer are reducing debt and increasing savings; the average houshold debt is decreasing slightly; and personal consumer goods spending is rebounding a bit (likely as a result from yet another Wall Street bailout -- the Cash for Clunkers program, and currently the Energy Efficient Home Applicance program). Yet, commercial real estate is absolutely devastating for regional banks -- unpaid loans on malls, hotels, and apartments stood at a 16-year high of 3.4% in Q3-2009 and is on the way to reach an average of 5.3% (See Appendix and Harding).

Thus, are things improving -- yes, they are, but many say not for the reasons one might hear on the nightly news. According to9 this view, the improvements in life have as part of the desire for better margins, not sales growth. They are seeing this within their domain, most having not been part of the executive management team in the early 1990s. The future, will depend on consumer confidence and sales growth, thus providing the assets for continued exploitation, low saving balances, and high credit card debt. This is something that must be understaken on an individual basis, but thinking as a collective. There are probably enough global resources to shore up the population and redistrict assets based on need. The United States, feel most economists who have studie this current decision in depth, believe that the U.S. is still the world's most synamic, entrepeneurial country in the world -- but, we need to ensure the recovery doesn't push us backward, but does propel us forward (Trumball).

APPENDIX A -- Current Economic Indicators (Harding)

Figure 1 - Personal Consumption Index

Figure 2 -- Reduction in Household Debt

Figure 3 -- Personal Savings Rates Grow


"2007 Public Company Bankruptcies Surpassed, According to" 17 September 2008. AllBusiness.Com. 11 April 2010

Andrews, E., "Fed's $85 Billion Loan Rescues Insurer." The New York Times 16 September 2008:

Bardeesy, Karim. "Bailout Baloney." 2 October 2008. The Big Money from Slate. 11 April 2010

Bucznski, Richard. "Economic Crisis: When Will It End?" 2010. IBIS World. 9 April 2010

Crittenden, M. "Panel Steps up Criticism of Treasury Over TARP." 9 January 2009. The Wall Street Journal. 9 April 2010

Crittenden, Michael. "Panel Steps Up Criticism of Treasury over TARP." 9 January 2009. The Wall Street Journal. 12 April 2010

Department, Treasury. "Treasury Announces TARP Capital Purchase Program Description." 14 October 2008. U.S. Department of the Treasury. 9 April 2010

Editorial, Washington Post. "necessary, Not Evil." 27 February 2009. The Washington Post. 12 April 2010

Ellis, David and J. Sahadi. "JP Morgan buys WaMu." 26 September 2008. CNNMoney.Com. 9 April 2010

Ellis, David. "T Stands for TARP... And Trouble." 7 November 2008. 9 April 2010

Glantz, A. "U.S. Insurers Told to Cover Mental Health Equally." 7 October 2008. One World U.S.. 9 April 2010

Gregoriou, G., ed. The Banking Crisis Handbook. New York: CRC Press, 2009.

Harding, Jeff. "The State of the Economy 2010." 9 February 2010. The Daily Capitalist. 9 April 2010

Hockett, R. "Bringing It All Back Home: How to Save Main Street, Ignore K. Street, and Thereby Save Wall Street." Fordham Urban Law Journal 36.3 (2009): 427+.

Ives, Benton, "Senate bailout Vote Will Put House on Spot Again." 1 October 2008. CQPolitics. 11 April 2010

John, D. "TARP: Fank's Bill Underscores Weaknesses of This Bailout Program." 14 January 2009. Memo 2233 - The Heritage Foundation. 8 April 2010

Kennedy, Patrick (Sponsor). "H.R. 1424." 2007-2008. Library of Congress. 10 April 2010

Lotto, David. "Decline Fortunes: How the Economic Crisis Affects the Future Economic Prospects of the Upper Middle Income Group." Journal of Psychohistory 37.2 (2009): 140+.

McCain, Jericho. "TARP After One Year: Was it Necessary? Did It Work?" 2 October 2009. Reboot the Republic. 10 April 2010

Mulligan, John. "Kennedy's Unitended Role in History." 2 October 2008. Rhode Island News. 11 April 2010

Npthwehr, E. "Summary of the Emergency Economic Stablization Act of 2008." 2008. University of Iowa Center for Finance. 10 April 2019

O'Dell, John. "Plug-In Tax Credits Hitching Ride on Wall Street Bail-Out Bill." 3 October 2008. Edmunds.Com. 11 April 2010

Pavlov, A. And S. Wachter. "Systemic Risk and Market Institutions." Yale Journal on Regulation 26.2 (2009): 445+.

Scontras, Dean. "Freddie Mac and Fannie Mae: A Case Study in Crony Capitalism." 2010. 10 April 2010

Senate, United States. "The Alternative Minimum Tax and Extenders Tax Relif Act of 2008 S. 2886." n.d. 9 April 2010

Solomon, Deborah. "Shape of Massive Bailout Bill Starts to Develop Definition." 29 September 2008. The Wall Street Journal. 10 April 2010

Soros, George. The New Paradigm for Financial Markets. Washington, D.C.: Public Affairs Press, 2008.

Stewart, James. "Eight Days: The Battle to Save the American Financial System." 21 September 2009. The New Yorker Magazine. 8 April 2010

Trumball, M. "White House Forecast: No Roaring Economic Recovery in 2010." 11 February 2010. The Christian Science…[continue]

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