TARP Bailout - What You Need To Know

Everyone has an opinion of the TARP bailout and whether or not it was a success. There are many reasons to believe that it was successful.

First of all, what is the TARP bailout? According to online sources it can be understood fairly simply. The Troubled Asset Relief Program is a plan that the U.S. government created to try to make the financial division of the country stronger by buying assets from banks and other financial institutions.

United States President George W. Bush signed the program into law in October of 2008. The law became one of the major ways the government worked to shore up the failing economy, caused by the sub-prime mortgage crisis. Buying-up what are called troubled or toxic assets further addressed the perilous economy.

After having a basic understanding of what the TARP bailout is, it is important to examine where the money actually went. The government purchased assets and equity from several different sectors. Most people remember that the government bought assets from banks deemed too big to fail, but where did the other 548 million dollars go?

Of course, the largest amount of the Troubled Asset Relief Program money did go to financial institutions and banks. The government pumped 245 billion taxpayer dollars to boost some of country’s largest banks. In fact, these banks were teetering to sink the world’s economy prior to the government stepping in with the relief buy-out.

The next largest sum of money went to Fannie Mae and Freddie Mac. Fannie Mae is the pet name given to the Federal National Mortgage Association. This is a stockholder-owned corporation, originally founded in the 1930s, whose purpose is to expand the secondary mortgage market by making mortgages more secure, producing mortgage-backed securities.

Freddie Mac is the public brother to Fannie Mae’s government chartered corporation. Freddie, Federal Home Loan Mortgage Corporation, received part of the TARP bailout money. Freddie Mac is a government sponsored venture expands on the secondary mortgage market business of Fannie Mae. When this market is expanded there is more money available to lend for purchase of homes.

The rest of the money was divided in various places. There was about 80 billion that went to the auto industry. General Motors was kept alive by the government after declaring bankruptcy. The government, and the American taxpayer, became the biggest shareholder in General Motors through the Troubled Asset Relief Program

Finally, American International Group received about 45 billion. AIG is an insurance corporation that became stretched thin by toxic assets. Along with AIG, the government also went on to buy up about 22 billion of other toxic assets holding back the United State’s economy. This left about $3 billion that went in various other directions.

Most people don’t realize that of all the 548 billion spent and loaned by the American taxpayer and the government, 78 percent has been paid back. This means that the TARP bailout has become a decently positive investment.