What Is the Emergency Economic Stabilization Act of 2008?

Emergency Economic Stabilization Act (EESA) is a law passed by Congress in 2008 in response to the subprime mortgage crisis. It authorized the Treasury secretary to buy up to $700 billion of troubled assets and restore liquidity in financial markets. EESA was originally proposed by Henry Paulson.

The House of Representatives rejected an initial EESA proposal in September 2008 but passed a revised bill the following month. EESA proponents believed that it was vital to minimize the economic damage done by the mortgage meltdown, while detractors condemned it as a bailout for Wall Street. The Troubled Asset Relief Program (TARP) was a pillar of EESA.

Key Takeaways

  • Congress passed the Emergency Economic Stabilization Act (EESA) in response to the financial crisis of 2007–2008, the worst since the 1930s.
  • EESA authorized the Treasury to buy up to $700 billion in troubled assets, a figure later reduced to $475 billion.
  • Proponents believed the EESA was necessary to prevent the collapse of the financial system, while detractors called it a bailout for Wall Street and the banks.

Understanding the Bailout

Congress passed EESA in response to the worst financial crisis since the 1930s. To help stabilize the financial system, TARP authorized the Treasury Secretary to "purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary."

The Treasury backed this broad mandate with $700 billion. The program aimed to "protect home values, college funds, retirement accounts, and life savings; preserve homeownership and promote jobs and economic growth; maximize overall returns to the taxpayers of the United States; and provide public accountability for the exercise of such authority."

The Effects of EESA

The act is widely credited with restoring stability and liquidity to the financial sector, unfreezing the markets for credit and capital, and lowering borrowing costs for households and businesses. This, in turn, helped restore confidence in the financial system and restart economic growth.

Largely as a result of the takeover of insurance giant AIG, by 2017, the Congressional Budget Office (CBO) estimated that TARP transactions cost taxpayers a little more than $32 billion. The CBO said the federal government disbursed $313 billion, most of which was repaid by 2017. It estimated a net gain to the government of $9 billion from those transactions. That included a net gain of about $24 billion from assistance to banks and other lending institutions, partially offset by $15 billion of assistance for AIG.

The Emergency Economic Stabilization Act (EESA) is one of the bailout measures taken by Congress in 2008 to help repair the damage caused by the financial crisis of 2007–2008. The act gave the Treasury secretary the authority to buy up to $700 billion of troubled assets in order to restore liquidity in the financial markets. The Emergency Economic Stabilization Act (EESA) was originally proposed by then-Secretary of the Treasury Henry Paulson.

Most of the money paid out under the EESA has since been repaid, and the Treasury has made a profit of more than $1 billion on its loans and investments.

In February 2019, the nonpartisan ProPublica reported that a total of $441 billion had been disbursed under TARP in the form of investments, loans, and payouts, of which $390 billion had been repaid to the Treasury. The Treasury had also earned $55.5 billion on those investments and loans. That, plus some additional revenue, had resulted in a profit, to date, of $1.83 billion for the Treasury.