Troubled Asset Relief Program - TARP

Remember 2008...the year of the Great Recession? Yeah...tough times.

The U.S. Treasury used TARP, the Troubled Asset Relief Program, to sort out the mess of the 2007-2008 financial crisis (i.e. the subprime mortgage crisis) and help the country (and the world, frankly) get back on track.

It ran for two years, and cost an initial capital outlay of $426.4 billion. Thankfully, it recouped $441.7 billion, thank the finance gods. So yes, lots of screaming, terrible situation...but it "net" cost about $15 billion: the current annual budget for wig storage for Congressmen from the midwest.

As the name suggests, TARP did the dirty work of handling troubled assets. It purchased troubled assets (lots of mortgages) and stock from the troubled financial institutions...you know, the ones who caused all the kerfuffle by being too risky with everyone’s cashola. This took a lot off the shoulders of those troubled banks, and aimed to increase the liquidity of money markets to get the economy churning again.

TARP provided liquidity to Bank of America/Merrill Lynch, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan, Morgan Stanley, State Street, and Wells Fargo. The U.S. government told the banks it would hold onto their stock while it smelled to the high heavens, and that the banks had to pay a 5% dividend (raised to 9% in 2013) on them. The idea is that, eventually, the bad smell would waft away, and it would be worth it for the banks to buy back their assets again later.

So how did TARP play out? Some think it was a great idea and saved the day. Others say it didn’t do much except get bad-acting banks off the hook...not really letting the free market do its thing.

Plus, TARP bonuses became controversial. TARP money wasn’t supposed to go to executive pay, but bailed-out banks gave their execs around $20 billion in bonuses, so...eh. TARP is still controversial, to say the least. In this era, note that GM was also bailed out, and nobody focuses on all of the marginally credit-worthy borrowers who were, in fact, able to buy that gorgeous home in the hills who didn't go bust, and now live a life of American Dream-y luxury.