TARP is the Troubled Asset Relief Program, created to implement programs to stabilize the financial system during the financial crisis of 2008. It was authorized by Congress through the Emergency Economic Stabilization Act of 2008 (EESA) and is overseen by the Office of Financial Stability at the U.S. Department of the Treasury.
History
TARP was a critical part of the government's efforts to combat the worst financial crisis since the Great Depression.
The crisis began in the summer of 2007 and gradually increased in intensity and momentum the following year. A series of major financial institutions, including Countrywide Financial, Bear Stearns, IndyMac, and Fannie Mae and Freddie Mac failed. Then, on September 15, 2008, Lehman Brothers filed for bankruptcy. As Lehman fell, the remaining major investment banking firms in this country teetered on the edge of collapse as their funding sources were squeezed.
Every major financial institution was threatened, and they tried to shore up their balance sheets by shedding risky assets and hoarding cash. The day after Lehman fell, the stock market dropped 500 points and there were signs of a generalized run on America's financial system.
Beginning in 2007, the Treasury Department, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and other federal government agencies undertook a series of emergency actions to prevent a collapse of the country's financial system and the dangers that would pose to consumers, businesses, and the broader economy. However, the severe conditions our nation faced required additional resources and authorities. Therefore, in late September, the Bush Administration proposed EESA, and with bi-partisan support in Congress, it was enacted into law on October 3, 2008.
The purpose of EESA was to promote the stability and liquidity of the financial system through the authorization of TARP and other measures. But TARP was only part of the government's response to the crisis. In 2008 and 2009, Treasury, the Federal Reserve, and the FDIC put in place a comprehensive set of emergency programs to stabilize the financial sector and the economy. These actions included purchases of mortgage-backed securities to help keep interest rates low, broad based guarantees of transaction accounts at banks and money market funds, liquidity facilities provided by the Federal Reserve, and support for Fannie Mae and Freddie Mac. And in 2009, at the urging of President Obama, Congress passed the American Recovery and Reinvestment Act (ARRA) to help create and save jobs, spur economic activity and invest in long-term growth.
By the middle of 2009, the government's coordinated response to the financial crisis had stabilized the financial system and resulted in significantly lower borrowing rates for businesses, individuals, and state and local governments. Companies were able to fund themselves in private markets by issuing equity and long term debt. The value of the savings of Americans had begun to recover. And the U.S. economy began to grow.
While Congress authorized $700 billion for TARP, Treasury utilized far less than that. In fact, TARP's lifetime cost is now estimated to be less than $60 billion, most of which will be attributable to the program's efforts to help struggling homeowners avoid foreclosure. As of September 30, 2012, American taxpayers have already recovered almost 89 percent ($369 billion) of the TARP funds disbursed to date ($417 billion).