WHAT IS 'TARP Bonuses'

TARP bonuses is a term used in a pejorative way to refer to the bonuses paid out to executives and traders in the investment banks involved in the financial crash of 2008 and government bailout of 2008 and 2009. The Troubled Asset Relief Program (TARP) used tax money to pay $426 billion to investment banks to prevent the entire financial system from collapsing and sending the United States into a depression. The New York Times reported in July 2009 that $20 billion had been given in bonuses to executives of the companies that received the bailouts.

BREAKING DOWN 'TARP Bonuses'

TARP bonuses were bonuses given out by investment banks to bankers and traders from money given to bail out these investment banks by the U.S. government. The investment banks had made billions of dollars in bad loans, many of them in unethical subprime mortgages, and when the market crashed in 2008, the banks were in danger of failing. In October 2008, then-President George W. Bush signed the Troubled Asset Relief Program (TARP) to authorize the U.S. government to use taxpayer money to purchase bad assets from the investment banks to save them from failing. This was extremely controversial at the time, but the idea was that letting the banks fail would plunge the whole country into a serious depression that could take decades to recover from. TARP was originally authorized to spend $700 billion to bail out the banks, but ended up spending $426 billion. By July 2009, nine of the investment banks involved in the bailout had given over 5,000 employees at least $1 million each in bonuses for 2008.

Public Reaction to the Bonuses

The American public reacted poorly to the news that the TARP bonuses had been given. Public opinion about TARP was divided to begin with, and the news that the very people who the public saw as being responsible for the banks needing to be bailed out were receiving more money than most Americans would ever make in their lifetimes as a one-time bonus for what the public saw as flagrant irresponsibility was galling to millions of people. The banks argued that they needed to pay competitive bonuses to retain talent and that the bankers had earned the bonuses, but critics asserted that the bailout itself was evidence that these employees did not qualify as "talent" and had not earned bonuses.

Then-President Barack Obama and then-New York State Attorney General Andrew Cuomo also disapproved of the bonuses and said so publicly. Congress made moves to pass legislation taxing these bonuses heavily, but as the investment banks paid the bailout loans back, attention turned away from the bonuses. In an interview with the New York Times in 2013, Henry M. Paulson Jr., who had been Secretary of the Treasury during the bailouts and the person in charge of administering TARP, said that in hindsight the banks should have understood that the bonuses would be unpopular and that he was disappointed with the way the banks had given them to employees.

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