How does TARP affect the economy?

By Jean Folger AAA
A:

TARP - or the Troubled Asset Relief Program - is a government program created in response to the subprime mortgage crisis that began in 2007. The original goal of the program was to give the U.S. Treasury $700 billion in purchasing authority to buy mortgage backed securities (MBS), the troubled assets that were to blame for the credit crisis, and to create liquidity in the money markets. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act reduced the total TARP purchasing power to a maximum of $475 billion. In October 2010, TARP's authority to incur new obligations ended.

The economic impacts of TARP have been evaluated in terms of its effect on factors such as employment, growth and stability. Ask two different economists or analysts how TARP has affected the economy and you will likely get two different answers. Former FDIC chairman Bill Isaac, for example, opined in his 2010 book Senseless Panic: How Washington Failed America that "any objective analysis would conclude that the TARP legislation did nothing to stabilize the financial system that could not have been done without it. Moreover, the negative aspects of the TARP legislation far outweighed any possible benefit."

U.S. Department of the Treasury Acting Assistant Secretary, Timothy G. Massad, on the other hand, concluded in a March 4, 2011, testimony to the U.S. Congress that TARP was a success. In his testimony, Massad stated, "… we can safely say that this program has been remarkably effective by any objective measure" and, "We have helped bring stability to the financial system and the economy at a fraction of the expected costs." Massad added that TARP was integral to the economic recovery and that, because of TARP, banks are better capitalized and the public is less afraid that major financial institutions will fail.

In short, because TARP spurs much controversy and debate, the answer to "How does TARP affect the economy?" will differ depending on whom you ask and what criteria are used to quantify its effects.

RELATED FAQS

  1. Where was the Dow Jones when Obama took office?

    Find out the value of the Dow Jones Industrial Average on the Jan. 20, 2009 inauguration of President Obama and how it has ...
  2. What's the difference between monetary policy and fiscal policy?

    Learn how monetary policy refers to bank actions to control interest rates and money supply, while fiscal policy refers to ...
  3. What is the difference between communism and socialism?

    Learn how some countries are incorporating socialist methods into capitalism.
  4. Where does stimulus economics come from?

    Depending on which type of economist you talk to, stimulus economics originated from the ideas of either a book published ...
RELATED TERMS
  1. Gross Cash Recovery (GCR)

    The gross cash colloctions expected over the remaining life of ...
  2. Initial Targeted Cash Value

    The gross amount of collections expected to be obtained through ...
  3. Liquidation Differential

    The loss in value of an asset after it has been placed in receivership ...
  4. Asset Management and Disposition Agreement (AMDA)

    A type of contract between the Federal Deposit Insurance Corporation ...
  5. Economic Justice

    Economic justice is a component of social justice. It's a set ...
  6. Eurasian Economic Union (EEU)

    An economic union created in 2014 by a treaty signed by Russia, ...
comments powered by Disqus
Related Articles
  1. The Nordic Model: Pros and Cons
    Economics

    The Nordic Model: Pros and Cons

  2. How The IRS Works: Functions & Audits
    Taxes

    How The IRS Works: Functions & Audits

  3. The Government And Risk: A Love-Hate ...
    Insurance

    The Government And Risk: A Love-Hate ...

  4. What You Need To Know About COBRA Health ...
    Insurance

    What You Need To Know About COBRA Health ...

  5. Become A Certified Financial Divorce ...
    Retirement

    Become A Certified Financial Divorce ...

Trading Center