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Video:Overview of the Troubled Asset Relief Program

with Megan Murphy

The Troubled Asset Relief Program, or TARP, was part of the bank bailout bill in 2008. Watch this About.com video to learn more about TARP and how it affected the financial crisis.See Transcript

Transcript:Overview of the Troubled Asset Relief Program

Hey, I'm Megan Murphy and today with About.com we'll give you a run down of the troubled asset relief program, or as its commonly called, TARP.

TARP Was Part of the Bank Bailout Bill

In 2008, the U.S. federal government agreed to purchase assets and equity from some of its largest financial institution to insure "troubled assets". The total amount was $700 billion. It was part of the bank bailout bill. The bailout was tied to the subprime mortgage crisis, when banks gave out mortgages to people who couldn't pay them back. Banks were stuck with damaging mortgage-backed securities. Several major financial institutions went under, including Lehman Brothers, Fannie Mae, Freddie Mac and AIG.

Capital Repurchase Program Was Part of TARP

President Bush and the Treasury Secretary revised the TARP plan soon after it was announced. Instead of buying those mortgage-backed securities, it would instead buy preferred stock in the companies. This is called the Capital Repurchase Program, and banks were required to to pay a 5 percent dividend that would increase to 9 percent.  What this did is, it incentivised the banks to pay the government back faster, and the government in theory should turn a profit. The government took away some larger tax benefits, and required limits on executive compensation.

Banks Bailed Out Through TARP

The investments started with the biggest banks on Wall Street:

  • AIG
  • Citigroup
  • Bank of America
  • Morgan Stanley
  • JPMorgan Chase
  • Wells Fargo
  • Goldman Sachs

Results of TARP

Just two years later in 2010, the Treasury's Office of Financial Stability reported it had recovered most of the investments made in banks. The Treasury Department also announced in 2010 that TARP repayments actually exceeded the total TARP funds outstanding, and estimating that taxpayers received an additional $23 billion in interest, dividends and other income. In October of 2012, about four years later, the CBO estimated once all TARP funds are paid, interest included, American taxpayers will be out $24 billion. Other estimates have put the total cost to American taxpayers as high as $60 billion.

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