The program had incentives for homeowners, servicers, and investors. This program allowed creditworthy homeowners, who were upside down in their homes, to refinance with lower mortgage rates—this helped homeowners reduce their risk of foreclosure. The program expired on December 31, In December , President George W.
Bush agreed to use TARP funds to bail out the big three automotive companies. As of , TARP didn't cost the taxpayers anything. These funds were never meant to be repaid. The TARP program quickly turned around the banking industry. In May , Fed Chair Ben Bernanke said that the results of the banking system's "stress tests" were encouraging. The tests found that nine of the country's 19 largest banks did not need to raise additional capital, nor did they need to offset future write-downs of the toxic mortgage-backed securities.
Mortgage-backed securities were one of the main culprits of the financial collapse; most of these banks were heavily invested in the housing market through sub-prime loans, which were then used to create these securities. The stress test confirmed that Capital One, U. Bank of America and Wells Fargo were responsible for one-third of that amount. TARP provided a surplus to the budget in those two years as banks paid back the bailout.
He wanted to tax the banks to repay taxpayers by levying the tax over a year period on the banks' riskiest activities, such as trading. He didn't want to tax banks' retail operations, because those costs would get passed on to customers as higher prices. Obama's proposal didn't pass Congress.
Without government intervention, the bankruptcy of those companies would have led to many more. They weren't aware that on September 16, , they were weeks away from a total economic collapse.
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Our leaders were at best naive about how this was going to play out. In response, officials at Treasury and the Fed created a new story line that the money was to increase lending, leading to congressional and media demands for banks to prove where exactly the increased lending was — an impossible task in the face of cratering loan demand.
Quickly, bankers were vilified, new restrictions were unilaterally applied to Tarp banks and the avalanche of new regulations that ultimately peaked with the Dodd-Frank Act began. The American Bankers Association tried — but was largely unsuccessful, I am afraid — to get the truth out against this tidal wave.
We went on every TV program and talked to every reporter we could, wrote op-eds and white papers, and talked to members of Congress and the regulators. I wrote the strongest letter of my career to then-Treasury Secretary Henry Paulson, pointing out the damage that was being done by the failure to forcefully counter this false narrative. We argued that banks were not the cause of the crisis; that banks did not ask for the Tarp investments and in fact were pressured to take them; that although there were a few possible exceptions among the big banks all the banks that took the money were, by the express requirements of Tarp, healthy banks — i.
Furthermore, while commentators routinely now say that no one could have predicted that there would be a profit for the government on the bank investments in Tarp, we did exactly that. Despite the dangers of doing so, we thought it was necessary to try to change the widely held and mistaken belief that this was a bailout. But actually it was even closer. So we have been proven right. And the government also would have been on the hook for billions in promised pension payments to autoworkers.
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