TARP: The Taxpayers’ Obligations?

The past few years have not passed by quietly. The election of our current President stirred up conversations in homes across the globe. A dramatic recession and its effects combined with a new health care package have left strong impressions, some of which are still uncertain. Hefty pieces of legislation are being passed more quickly than the public, let alone our congressmen, can keep up with. As with most reform policies approved by Congress, much of the impact will not be seen until years after the bill has been passed. Lurking amidst conversations with the proposal of the new financial overhaul bill is the larger portion of legislation and its parts lost in translation.

In October of 2008, Congress passed the Emergency Economic Stabilization Act. The more commonly known piece of this bill is the Troubled Asset Relief Program (TARP). Of the ten pieces attached to the program, some of these include the Capital Purchase Program, the Asset Guarantee Program, and the Automotive Supplier Support Program. Each section of TARP was tailored to alleviate the debt problems associated with different parts of the financial sector. One of the largest and most concerned pieces of “troubled assets” was the subprime mortgages which banks held. A subprime mortgage loan is one which banks hold as a risky asset because these subprime loans were handed out to individuals with less than stellar credit. This is where America fell into trouble, and these loans were arguably the most significant reason why there was a need for a Troubled Asset Relief Program.

Many Americans are familiar with the association of the words “700 billion dollars” and “taxpayers” in the same sentence. As previously mentioned, several parts to the TARP program were necessary to secure financial stability within our financial sector. The Capital Purchase Program was created to allow the Treasury to soak up approximately 700 billion dollars of troubled assets, subprime loans, from the banks. The banks’ acceptance was contingent upon approval of the banks’ application which included an obligation to a repayment plan (Herszenhorn, The New York Times). Without examining gross detail, the banks repay our government for this particular piece of the TARP program, not our taxes.

As of April 12, according to Reuters Online, “the government’s bailout of the financial system is expected to cost $89 billion, much lower than earlier projections…” While this number is not to be understated as a significant portion of debt, Reuters Online quoted the previous price tag at somewhere near $356 billion dollars to taxpayers. An important distinction is made in the understanding of the differences between each portion of this legislation. While the subprime mortgage loans were valued at $700 billion dollars, the taxpayers will not be paying that money. The only way to truly understand the impact this legislation may have on the American citizen’s wallet is to seek out the facts. The following link may be useful for researching the facts: http://www.financialstability.gov/latest/index.html.

For more information, check out:
Herszenhorn, David. Administration is Seeking $700 Billion for Wall Street. Sept. 21, 2008.

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