Troubled Asset Relief Program
Troubled Asset Relief Program (TARP)
Erick Jones
11/10/11
The Troubled Asset Relief Program, also known as TARP, was implemented in 2008 as a reaction to the unprecedented financial crisis that was troubling several Wall Street firms. In order to “relieve” the government-sponsored enterprises Fannie Mae and Freddie Mac, in addition to these firms, the bailout was to purchase assets and equity from financial institutions in order to strengthen their financial sector. The bailout was later extended to include the automotive industry. The vast majority of the bailout funds were received by two companies, American International Group (AIG) and Citigroup respectively. AIG was one of the largest insurance companies in the United States and Citigroup was the largest bank in the US. There were many other banks which received funds from TARP in exchange for equity shares (Verret, 2011).
TARP authorized expenditures of $700 billion to bailout the financial industry. In order to make this program successful under EESA, the Emergency Economic Stabilization Act, the department of the treasury purchased enough interest in AIG, General Motors (GM), Chrysler, GMAC, as well as hundreds of national banks, to claim control (Verret, 2011). Even though EESA authorized the government to use $700 billion to enforce the purpose and objectives of the TARP program, that plan was quickly reconstituted into a number of different programs (Verret, 2011) . “As part of that bailout, the Treasury took preferred equity in TARP recipients and subsequently initiated a plan to convert those non-voting preferred shares into shares convertible into voting common equity. The Treasury’s initial experiment in holding common equity took place at Citigroup, in which it took a controlling thirty-four percent voting stake” (Verret, 2011). The Auto Industry Finance Program (AIFP) was introduced in late 2008 to help bailout the automotive industry with TARP support. Originally $17 billion
Erick Jones
11/10/11
The Troubled Asset Relief Program, also known as TARP, was implemented in 2008 as a reaction to the unprecedented financial crisis that was troubling several Wall Street firms. In order to “relieve” the government-sponsored enterprises Fannie Mae and Freddie Mac, in addition to these firms, the bailout was to purchase assets and equity from financial institutions in order to strengthen their financial sector. The bailout was later extended to include the automotive industry. The vast majority of the bailout funds were received by two companies, American International Group (AIG) and Citigroup respectively. AIG was one of the largest insurance companies in the United States and Citigroup was the largest bank in the US. There were many other banks which received funds from TARP in exchange for equity shares (Verret, 2011).
TARP authorized expenditures of $700 billion to bailout the financial industry. In order to make this program successful under EESA, the Emergency Economic Stabilization Act, the department of the treasury purchased enough interest in AIG, General Motors (GM), Chrysler, GMAC, as well as hundreds of national banks, to claim control (Verret, 2011). Even though EESA authorized the government to use $700 billion to enforce the purpose and objectives of the TARP program, that plan was quickly reconstituted into a number of different programs (Verret, 2011) . “As part of that bailout, the Treasury took preferred equity in TARP recipients and subsequently initiated a plan to convert those non-voting preferred shares into shares convertible into voting common equity. The Treasury’s initial experiment in holding common equity took place at Citigroup, in which it took a controlling thirty-four percent voting stake” (Verret, 2011). The Auto Industry Finance Program (AIFP) was introduced in late 2008 to help bailout the automotive industry with TARP support. Originally $17 billion
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