What Is the Emergency Economic Stabilization Act (EESA) of 2008?

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.

Key Takeaways

  • The Emergency Economic Stabilization Act (EESA) was passed by Congress in response to the financial crisis of 2007–2008.
  • The EESA gave the Secretary of the Treasury the authority 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 Emergency Economic Stabilization Act (EESA) of 2008

In its original form, the EESA was rejected by the U.S. House of Representatives in September 2008, and it was therefore revised. The revised version, formally known as Public Law 110–343, passed the following month. Proponents of the plan believed that it was vital to minimize the damage done to the economy by the mortgage meltdown, while detractors contended that the cost amounted to a bailout for Wall Street and the banks. A central part of the response to the financial crisis was the implementation of the Troubled Asset Relief Program (TARP), which the EESA authorized.

The law was passed in response to one of the worst financial crises in United States history, in which, for the first time in 80 years the U.S. financial system was at risk of collapse. To help stabilize the financial system, the Secretary of the Treasury was authorized 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."

This broad mandate was backed by $700 billion from the U.S. Treasury. The stated goals of the program were 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 $700 billion was later reduced by law to $475 billion.

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.

The act is widely credited with restoring stability and liquidity to the financial sector, unfreezing the markets for credit and capital, and bringing down the cost of borrowing for households and businesses. This in turn helped to restore confidence in the financial system and restart economic growth, although a decade later some markets had still not returned to their pre-crisis highs.

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

In February 2019, the nonpartisan journalism organization 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 paid back to the U.S. 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.