It occurs to me that many people aren’t perfectly sure what TARP is. I found this explanation on Investopedia.com to be great.
Troubled Asset Relief Program – TARP
What Does Troubled Asset Relief Program – TARP Mean? A government program created for the establishment and management of a Treasury fund, in an attempt to curb the ongoing financial crisis of 2007-2008. The TARP gives theU.S. Treasury purchasing power of $700 billion to buy up mortgage backed securities (MBS)from institutions across the country, in an attempt to create liquidity and un-seize the money markets. The fund was created by a bill thatwas made law on October 3,2008 with the passage of H.R. 1424 enacting the Emergency Economic Stabilization Act of 2008. The Treasury will be given $250 billion immediately, and the President must certify additional funds as they are needed. The additional funds will be distributed as $100 billion, and then as the final $350 billionis given, Congress has the right to not approve the additional amounts.
Investopedia explains Troubled Asset Relief Program – TARP… Global credit markets came to a near stand still in September 2008, as several major financial institutions, such as Lehman Brothers, Fannie Mae, Freddie Mac and American International Group, went under. In a few surprising moves, heavyweights Goldman Sachs and Morgan Stanley even changed their charter to become commercial banks, in an attempt to stabilize their capital situation. The bailout will attempt to increase the liquidity of the secondary mortgage markets by purchasing the illiquid MBS, and through that, reducing the potential losses that could be felt by the institutions who currently own them.
In October of 2008, revisions to the program were announced by Treasury Secretary Paulson and President Bush; allowing for the first $250 billion to be used to buy equity stakes in nine major U.S. banks, and many smaller banks. This program demands that companies involvedlose some tax benefits, and in many cases incur limits on executive compensation.
