The Troubled Asset Relief Program (TARP) was created in October of 2008 to address the fiscal crisis by purchasing warrants and stocks from financial institutions so that those items no longer burdened the banks. The legislation outlines what items can be purchased, and defines the institutions from which those items can be purchased. President Bush violated those rules prior to leaving office when he loaned money to General Motors and Chrysler. President Obama further violated those rules when he purchased stock in GM and then used the influence from those purchases to direct changes at GM.
Although the TARP expressly limits the use of the program to the purchasing of stocks and warrants from financial institutions, President Obama decided to expand the program shortly after assuming office and made it a fund through which programs to assist homeowners and create jobs could be drawn. Although this violated that text of the legislation, President Obama created numerous programs to accomplish this goal. These include programs to spur lending among small businesses, programs to assist homeowners in refinancing their homes, and programs to directly provide funds to states hardest hit by the housing crisis - a further violation of the TARP legislation.
Of the funds issued by President Bush, a vast majority went to the Capital Purchase Program and the Targeted Investment Program. A vast majority of that money has been repaid by the financial institutions that received them. The loan to GM was repaid, but some money from the GM bailout remains.
Of the funds issued by President Obama, almost no funds have been issued by President Obama to the programs originally designed through TARP. Most of the funds issued by President Obama have gone to home ownership programs and the bailout of GM through stock purchases. As seem in the charts below, almost 90% of the funds issued by President Bush have been returned while less than 10% of the money issued by President Obama has been returned.
Timeline
Below is a timeline of events relating to President Obama, the Troubled Asset Relief Program, and General Motors.
October 3, 2008 - President Bush signs TARP into law
January 12, 2009 - President-Elect Obama asks President Bush to request second installment of TARP funds
February 2009 - President Obama announces $75 Billion program to address home ownership programs
December 8, 2009 - President Obama announces new jobs program with TARP funds
March 2009 - Programs announced to assist in mortgage modification and small business lending
Emergency Economic Stabilization Act of 2008
On October 3, 2008 President Bush signed Emergency Economic Stabilization Act of 2008 into law. Otherwise known as TARP for one of it's subtitles - the Troubled Asset Relief Program, the purpose of the bill was as follows:
to immediately provide authority and facilities that the Secretary of the Treasury can use to restore liquidity and stability to the financial system of the United States; and
to ensure that such authority and such facilities are used in a manner that--rn
protects home values, college funds, retirement accounts, and life savings;
preserves homeownership and promotes jobs and economic growth;
maximizes overall returns to the taxpayers of the United States; and
provides public accountability for the exercise of such authority.
The legislation laid out guidelines as to what could be purchased, from whom such items could be purchased, how much money could be committed at any given time, and reporting requirements. The legislation created an initial $350 Billion for use by the President, with another $350 Billion available if the President asked for it and Congress authorized it. Within the legislation, the following items are defined.
FINANCIAL INSTITUTION- rn
The term `financial institution' means any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State, territory, or possession of the United States, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, Guam, American Samoa, or the United States Virgin Islands, and having significant operations in the United States, but excluding any central bank of, or institution owned by, a foreign government.
TROUBLED ASSETS- The term `troubled assets' means--rn
residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability;
and any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress.
With those entities defined, Section 113 of the legislation dictates what the Treasury Secretary can purchase with the money by denoting what the Secretary may accept in exchange for that money. The language dictates that either preferred stock must be purchased, or common stock with no voting rights. The reasoning behind these stipulations is that preferred stock is more like debt and is paid prior to common stock. This was thought to minimize risk to the taxpayers. Common stock was allowed to be purchased only if it contained no voting rights in the company (preferred stock has no voting rights). The logic is that if the government owned a large percentage of a bank's stock and possessed voting rights through that stock, then the goverment would essentially control that bank.
IN GENERAL- The Secretary may not purchase, or make any commitment to purchase, any troubled asset under the authority of this Act, unless the Secretary receives from the financial institution from which such assets are to be purchased--rn
in the case of a financial institution, the securities of which are traded on a national securities exchange, a warrant giving the right to the Secretary to receive nonvoting common stock or preferred stock in such financial institution, or voting stock with respect to which, the Secretary agrees not to exercise voting power, as the Secretary determines appropriate; or
in the case of any financial institution other than one described in subparagraph (A), a warrant for common or preferred stock, or a senior debt instrument from such financial institution, as described in paragraph (2)(C).
Request for Second Half of TARP
On January 12, 2009 President Bush stated that if President Obama desired the second installment of TARP funds, then he would move forward with the request. President-elect Obama immediately asked President Bush to request the funds.
(it would be) irresponsible ... to enter into the administration without any potential ammunition should there be some sort of emergency or weakening of the financial system.
It is clear that the financial system, although improved from where it was in September, is still frail.
TARP Subprograms
The Emergency Economic Stabilization Act of 2008 (otherwise known as "the bailout") created the Troubled Asset Relief Program (TARP). Some of the 9 subprograms initiated under TARP were in place prior to President Obama assuming office. Other programs were initiated during his administration. The programs initiated by President Bush include:
American International Group
Automotive Industry Financing Program (AIFP)
Capital Purchase Program
Targeted Investment Program
Asset Guarantee Program
President Obama has initiated numerous programs using the TARP funds. These purposes of these programs range from helping people refinance their homes to spurring lending for small businesses to welfare funds as shown below:
Small Business and Community Lending Initiative
Home Affordable Modification Program
Consumer and Business Lending Initiative
Community Development Capital Initiative
Public-Private Investment Program
Hardest Hit Funds Program
FHA Short Refinance Program
TARP and GM
The use of TARP funds to bail out General Motors is addressed in a separate item. The purchase of stock and warrants from GM was not valid through TARP as the GM and Chrysler are not financial institutions as defined by the TARP legislation. The use of that stock holding as leverage to force the CEO of GM out and to allow the US government to appoint chairs to the board at GM is counter to guidelines of TARP which expressly forbid purchasing stock with voting rights so that the government could not assert influence over companies it had purchased shares of through the program.
Funds Committed to TARP
The TARP program initially consisted of programs to deal with toxic assets. Those programs were extended by President Bush when he initiated loans to President Obama. President Obama further extended those programs to purchase stock in auto companies and then invest in local communities. Over 87% of the money issued by President Bush has been returned while roughly 9% of the money issued by President Obama has been returned. This data is current as of mid-March 2011 and taken from the TARP disclosure statements.
Changes to TARP Program
On January 15, 2009 President-Elect Obama's Economic Advisor Larry Summers wrote a letter to leaders in Congress and outlined changes that the Obama administration would like to make to the TARP program.
Letter from Lawrence H. Summers to congressional leaders
The attached letter was sent today by Lawrence H. Summers to the bipartisan leaders of the United States Senate and House of Representatives detailing President-elect Obama’s commitment to implement the Emergency Economic Stabilization in a way that will promote the stability of the financial system and increase lending, preserve home ownership, promote jobs and economic recovery, safeguard taxpayer interests, and have the maximum degree of accountability and transparency possible.
...
Dear Madam Speaker, Leader Boehner, Leader Reid and Leader McConnell:
Thank you for the extraordinary efforts you have made this week to work with President-Elect Obama in implementing the Emergency Economic Stabilization Act of 2008. In addition to the commitments I made in my letter of January 12, 2009, the President-Elect asked me to respond to a number of valuable recommendations made by members of the House and Senate as well as the Congressional Oversight Panel. We completely agree that this program must promote the stability of the financial system and increase lending, preserve home ownership, promote jobs and economic recovery, safeguard taxpayer interests, and have the maximum degree of accountability and transparency possible.
As part of that approach, no substantial new investments will be made under this program unless President elect Obama has reviewed the recommendation and agreed that it should proceed. If the President elect concludes that a substantial new commitment of funds is necessary to forestall a serious economic dislocation, he will certify that decision to Congress before any final action is taken.
As the Obama Administration carries out the Emergency Economic Stabilization Act, our actions will reflect the Act’s original purpose of preventing systemic consequences in the financial and housing markets. The incoming Obama Administration has no intention of using any funds to implement an industrial policy.
The Obama Administration will commit substantial resources of $50-100B to a sweeping effort to address the foreclosure crisis. We will implement smart, aggressive policies to reduce the number of preventable foreclosures by helping to reduce mortgage payments for economically stressed but responsible homeowners, while also reforming our bankruptcy laws and strengthening existing housing initiatives like Hope for
Homeowners. Banks receiving support under the Emergency Economic Stabilization Act will be required to implement mortgage foreclosure mitigation programs. In addition to this action, the Federal Reserve has announced a $500B program of support, which is already having a significant beneficial impact in reducing the cost of new conforming mortgages. Together these efforts will constitute a major effort to address this critical problem.
In addition to these commitments, I would like to summarize some of the additional reforms we will be implementing.
1. Provide a Clear and Transparent Explanation for Investments:
For each investment, the Treasury will make public the amount of assistance provided, the value of the investment, the quantity and strike price of warrants received, and the schedule of required payments to the government.
For each investment, the Treasury will report on the terms or pricing of that investment compared to recent market transactions.
The above information will be posted as quickly as possible on the Treasury’s website so that the American people readily can monitor the status of each investment.
2. Measure, Monitor and Track the Impact on Lending:
As a condition of federal assistance, healthy banks without major capital shortfalls will increase lending above baseline levels.
The Treasury will require detailed and timely information from recipients of government investments on their lending patterns broken down by category. Public companies will report this information quarterly in conjunction with the release of their 10Q reports.
The Treasury will report quarterly on overall lending activity and on the terms and availability of credit in the economy.
3. Impose Clear Conditions on Firms Receiving Government Support:
Require that executive compensation above a specified threshold amount be paid in restricted stock or similar form that cannot be liquidated or sold until the government has been repaid.
Prevent shareholders from being unduly rewarded at taxpayer expense. Payment of dividends by firms receiving support must be approved by their primary federal regulator. For firms receiving exceptional assistance, quarterly dividend payments will be restricted to $0.01 until the government has been repaid.
Preclude use of government funds to purchase healthy firms rather than to boost lending.
Ensure terms of investments are appropriately designed to promote early repayment and to encourage private capital to replace public investments as soon as economic conditions permit. Public assistance to the financial system will be temporary, not permanent.
4. Focus Support on Increasing the Flow of Credit:
The President will certify to Congress that any substantial new initiative under this program will contribute to forestalling a significant economic dislocation.
Implement a sweeping foreclosure mitigation plan for responsible families including helping to reduce mortgage payment for economically stressed but responsible homeowners, reforming our bankruptcy laws, and strengthening existing housing initiatives like Hope for Homeowners.
Undertake special efforts to restart lending to the small businesses responsible for over two-thirds of recent job creation.
Ensure the soundness of community banks throughout the country.
Limit assistance under the EESA to financial institutions eligible under that Act. Firms in the auto industry, which were provided assistance under the EESA, will only receive additional assistance in the context of a comprehensive restructuring designed to achieve long-term viability.
The incoming Obama Administration is committed to these undertakings. With these safeguards, it should be possible to improve the effectiveness of our financial stabilization efforts. As I stressed in my letter the other day, we must act with urgency to stabilize and repair the financial system and maintain the flow of credit to families and businesses to restore economic growth. While progress will take time, we are confident that, working closely with the Congress, we can secure America’s future.
Sincerely,
Lawrence H. Summers Director-Designate National Economic Council
Use of TARP Funds for Job Creation
On December 7, 2009 the President stated that some of the remaining TARP funds may be used for programs to create jobs and help lending for small businesses.
It means that some of that money devoted, can be devoted to deficit reduction and the question is, are there selective approaches that are consistent with the original goals of TARP.
The fact that having gotten the financial crisis under control, having finally moved in the positive territory when it comes to economic growth, our biggest challenge now is making sure that job growth matches up with economic growth.
Although we stabilized the financial system one of the problems that we’re still seeing all the time, and I heard about it when I was in Allentown just this past week, is the fact that small businesses and some medium sized businesses are still feeling the huge credit crunch. They cannot get the loans they need to make capital adjustments that would allow them to expand employment. And so that’s a particular area where we might be able to make a difference.
On December 8, 2009 the White House officially announced that it would be taking the remaining TARP funds and using it for programs to stimulate job growth. The President made the announcement at the Brookings Institution in Washington, DC.
The White House
Office of the Press Secretary
For Immediate Release December 08, 2009 President Obama Announces Proposals to Accelerate Job Growth and Lay the Foundation for Robust Economic Growth
Today, the President laid out some of the broad steps that he believes should be at the heart of our efforts to help put Americans back to work and get businesses hiring again. This announcement is part of the President’s ongoing effort to take every responsible step to accelerate the pace of job growth. The President views every bill through the prism of job growth and will continue to explore additional approaches as well. These measures are part of the overall policy designed to not just create jobs in the short run but also shift America away from consumption-driven growth to a focus on enhancing the competitiveness of America’s businesses, encouraging investment, and promoting exports.
The bold and difficult steps the President took to stabilize the financial system have reduced the cost of TARP by more than $200 billion, providing additional resources for job creation and for deficit reduction.
I. THREE KEY AREAS FOR ACCELERATING JOB GROWTH
1. Helping Small Businesses Expand Investment, Hire Workers and Access Credit
Tax cuts to support additional business investment next year – with a particular focus on struggling small businesses – with much of the cost recouped over time.
Zero capital gains for small businesses: To encourage investment by small businesses and improve their access to capital, the Administration is calling for a one-year elimination of the tax on capital gains from new investments in small business stock. The Recovery Act allowed a 75% exclusion from capital gains taxes on small business investments.
Extension of enhanced expensing provisions for small businesses: The Administration is also calling for the extension through 2010 of the Recovery Act provision that allows small businesses to immediately expense up to $250,000 of qualified investment.
Extension of Recovery Act bonus depreciation tax incentive: To give businesses an incentive to invest, the Administration is calling for extending the Recovery Act provision that accelerates the rate at which business can deduct the cost of capital expenditures. This provision will put more than $20 billion in the hands of businesses in 2010, while enabling Treasury to recoup much of the funding as business regain their strength.
A new tax cut for small businesses to encourage hiring in 2010. Although the economy is now growing again, many businesses remain reluctant to hire. In this economic environment, an employment tax cut for small businesses has the potential to accelerate the pace of hiring. The Administration believes it is important to provide a short-term tax incentive to encourage small business hiring and support employment, and will work with Congress to design a provision that accomplishes these goals.
Eliminating fees and increasing guarantees for small businesses that borrow through major SBA programs in 2010. The President called for the elimination of fees and an increase in guarantees for loans through the Small Business Administration, a measure that extends provisions in the Recovery Act through the end of 2010. In addition, the President called for continued Treasury efforts to use the TARP to support small business lending.
2. Investing in America’s Roads, Bridges and Infrastructure
Additional investment in highways, transit, rail, aviation and water. The President is calling for new investments in a wide range of infrastructure, designed to get out the door as quickly as possible while continuing a sustained effort at creating jobs and improving America’s productivity.
Support for merit-based infrastructure investment that leverages federal dollars. The Administration supports financing infrastructure investments in new ways, allowing projects to be selected on merit and leveraging money with a combination of grants and loans as was done through the Recovery Act’s TIGER program.
3. Creating Jobs Through Energy Efficiency and Clean Energy Investments
New incentives for consumers who invest in energy efficient retrofits in their homes. Smart, targeted investments in energy efficiency can help create jobs while improving our energy security and saving consumers money. The President today called on Congress to consider a new program to provide rebates for consumers who make energy efficiency retrofits. Such a program will harness the power of the private sector to help drive consumers to make cost-saving investments in their homes.
Expansion of successful oversubscribed Recovery Act programs to leverage private investment in energy efficiency and create clean energy manufacturing jobs. The Recovery Act included historic investments that have helped to build the foundation for a clean energy economy. The Administration supports expanding programs for which additional federal dollars will leverage private investment and create jobs quickly, such as industrial energy efficiency investments and tax incentives for investing in renewable manufacturing facilities in the U.S.
II. A FISCALLY RESPONSIBLE APPROACH TO JOB CREATION THROUGH STEWARDSHIP OF TARP AND OVERALL FISCAL DISCIPLINE
These steps are part of the President’s overall approach to fiscal discipline. This includes:
Freeing up resources from stabilizing Wall Street and putting them to work on Main Street. Because of the Administration’s stewardship of the TARP program – combined with our broader efforts to revive the economy – we now expect the cost to be at least $200 billion less than anticipated as recently as August. Indeed, since the Obama Administration has taken office, only $7 billion has been provided in assistance to banks, compared to $114 billion in capital that banks subject to the “stress test” have raised from the private sector. These savings will allow us to pay down the deficit faster than was anticipated while also investing funds that would have gone to banks in job creating efforts instead.
An overall approach to fiscal discipline in the budget. Although additional resources are needed in the short-run to address the unemployment crisis, the Administration is committed to doing what we need to bring the medium-term deficit under control – and is exploring a range of steps to take as part of the FY2011 budget process. An additional important component of returning to fiscal responsibility is passing health reform legislation that not only reduces the deficit but also reduces the long-term growth rate of health care costs.
III. AN ONGOING FOCUS ON JOB CREATION
In addition to the proposals outlined above, the Administration will be working with Congress to ensure that those hit hardest by this economic crisis continue to receive the support they need. This includes: extending unemployment insurance for Americans who are struggling to find jobs, extending the Recovery Act provision that helps out-of-work Americans keep their health insurance through COBRA, providing an additional $250 Economic Recovery Payment to our seniors and veterans, and taking steps to ensure that state and local governments are not forced to lay-off teachers, police officers and other key personnel at this critical time.
These steps will build on the efforts that the Administration has already taken to accelerate the pace of job growth, including tax cuts for struggling businesses, an expanded homebuyer credit, additional unemployment insurance to one million Americans, and the Cash for Clunkers program. The Administration is also continuing to pursue efforts to increase the competitiveness of U.S. businesses and strengthen their capacity to export to overseas markets.
Release of Plan
In March of 2009, President Obama used his weekly address to talk about the programs created through TARP to assist the economy. He states that the programs will assist home owners and their lenders rework loans, and will assist in starting credit for people to purchase cars and get loans for college.
Housing Programs
In February of 2009, President Obama announced his initiative to assist home ownership. He committed $75 Billion to the program.
Among the programs created by President Obama, Housing programs called the Making Home Affordable and the Hardest Hit Funds were created. The Hardest Hit funds went directly to states to assist with preventing foreclosures to those states that demonstrated a high rate of unemployment and foreclosures. The official description of the Making Home Affordable program is shown below from the Treasury Department's website.
President Obama announced the Making Home Affordable Program in February 2009 as part of a broader plan to stabilize the housing market. Making Home Affordable has served as a catalyst for the mortgage industry to provide more affordable and sustainable assistance to struggling homeowners to prevent avoidable foreclosures.
To date, over 1.4 million homeowners have started a trial modification under the Home Affordable Modification Program (HAMP), and over half a million homeowners have received permanent modifications reducing their mortgage payments by an average of over $500 every month. In total, homeowners have already reduced their mortgage burden by over $4.5 billion through HAMP permanent modifications.
Since its launch, the Making Home Affordable Program has been expanded to offer assistance to homeowners with second liens or who are struggling because they are unemployed or “underwater” (owe more on their home than it is currently worth). Making Home Affordable also includes the Home Affordable Foreclosure Alternatives Program (HAFA) which has greatly streamlined the process for homeowners seeking a short sale or deed-in-lieu of foreclosure.
The Administration has accomplished a great deal to help homeowners across the country. But we recognize the continued commitment needed to help American families during the worst housing crisis in recent history and will aggressively continue to build on our progress to date. Sustained recovery of our housing market and the mitigation of foreclosures are critical to lasting financial stability and promoting a broad economic recovery. We continue to work to help restore stability to the U.S. housing market and ensure a sustained economic recovery.
In total, $7.6 Billion has been committed to the Hardest Hit Funds project and has been divided among 18 states plus Washington DC. California and Florida make up 40% of the contributed funds. However, this program is small compared to the almost $30 Billion Home Affordability Modification Program (HAMP).
Voting Record
Emergency Economic Stabilization Act
In October of 2008, the Senate passed the Emergency Economic Stabilization Act, which created the TARP program. The legislation passed 74-25. Barack Obama voted in favor of the Emergency Economic Stabilization Act.
Barack Obama voted in favor of the Emergency Economic Stabilization Act.
Sponsored and Cosponsored Legislation
This representative has not been identified as sponsoring or cosponsoring significant legislation related to this title.
