Who Benefited from the Bailout?
46 Pages Posted: 9 Aug 2011
Date Written: February 1, 2011
The Troubled Asset Relief Program (TARP) was created to respond to a financial panic. Some might say that it was created in panic. Congress appropriated a huge sum of money, gave the Secretary of the U.S. Department of the Treasury (Treasury) enormous latitude to spend the money, and provided ambiguous and, some might say, contradictory direction on the goals and objectives of TARP. Treasury, in turn, gave clear guidance on how it proposed to use the money - to purchase deeply discounted toxic assets from troubled financial institutions - only to shift directions within weeks, when it used TARP funds to make capital investments in banks.
Part I of this Article describes the government’s actions in the financial crisis of 2008, beginning with the collapse of Bear Stearns. Part II follows the money with respect to both TARP and non-TARP funds and assesses those interventions. Part III contains a brief summary of past banking failures in the United States, demonstrating that the government’s intervention was not out of the ordinary. It also discusses how fundamental changes in the banking business model, coupled with significant industry consolidation, will have consequences for future bank failures, which are inevitable. This Article concludes with some observations on what regulators must address to reduce the consequences of future failures.
Keywords: Financial Crisis of 2008, TARP, Financial reglatory reform
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