What is the troubled asset relief program?

The Troubled Asset Relief Program, commonly spoken of and abbreviated as TARP, was the first major effort by the U.S. government to stabilize the U.S. economy after the economic collapse of 2007-2008. The collapse triggered the so-called Great Recession and the worst economic downturn in the U.S. since the Great Depression. President George W's. Bush on 3. October 2008 program signed under HR 1424 authorized the government to spend billions of dollars to buy up defective mortgage-backed securities. By purchasing these so-called troubled assets, the government hoped to provide financial stability and inject a more liquid credit stream into the market. When referring to the financial rescue of this time, people largely refer to the Troubled Asset Relief Program.

In 2008, financial giants issuing insurance on home mortgages-notably the Federal National Mortgage Association, or Fannie Mae; the Federal Home Mortgage Corporation, or Freddie Mac; and American Insurance Group (AIG)-began to falter and collapse under the weight of faulty subprime mortgage loans. Subprime mortgages are riskier because they are given to borrowers who are least likely to repay the loan. In other words, borrowers with poor credit scores were approved for loans by banks that were insured against those loans by organizations like Fannie Mae and Freddie Mac. The problem was exacerbated because these mortgage loans were then packaged into securities that investors could buy and sell.

When millions of homeowners defaulted on their payments and defaulted on their loans, it set off a chain reaction of financial failure; the banks that made the loans faltered, the mortgage-backed securities were exhausted, and the financial corporations that insured and packaged those mortgages into securities also took such a catastrophic hit that the federal government had to intervene to prevent a depression. Era collapse. The government did this by buying up bad loans and mortgage-backed securities with hundreds of billions of dollars provided by the Troubled Asset Relief Program. Originally, the cost of the bill was $700 billion (USD), but over time the Congressional Budget Office (CBO) estimated the long-term cost to be less than half of that. If the government had not intervened, banks would have been forced to dramatically increase mortgage payments, and most economists believe the housing market would have collapsed much more than it ultimately did.

The Trouble Asset Relief Program resulted in the U.S. government literally taking over certain organizations, even though the government stated its intention to eventually return the companies to private shareholders. Failing companies such as U.S. automaker General Motors (GM), for example, were bought out by the government. The companies that received funds from the Troubled Asset Relief Program were required by law to repay the money, which they began doing back in 2009. The program and certain organizations that received funds from it came under heavy fire when companies like It was discovered that AIG used some of the money to pay lavish bonuses to some of the executives who contributed to the economic turmoil.

The Troubled Asset Relief Program should not be confused with the Recovery Act, which was signed into law on 17. February 2009, signed into law by President Barack Obama. The law provided an additional $787 billion for investment in the recovery of the U.S. economy. Much of this money was used as a short-term stimulus, some of which was given in the form of personal checks to every American citizen, and other portions of which were distributed to state governments and other financial structures that would benefit from an influx of liquid cash.