The Troubled Asset Relief Program (TARP) is winding down. As of October 3, 2010, no new investments can be made through that program.
Looking back, it’s clear that TARP has played a critical role in stabilizing the financial system during a period of historic crisis and has helped put our country on the path to economic recovery – at a fraction of that initiative’s original projected cost. With all the myths you’ve likely heard about TARP, though, sometimes the truth gets lost in the shuffle. But here are the facts:
- TARP broke the back of a growing panic, recapitalized the financial system, restarted the credit markets, and lowered borrowing costs for businesses and families. That made the recovery possible. Independent experts agree that TARP, along with the government’s other responses to the financial crisis, saved nearly 8.5 million American jobs, helping to prevent the recession from turning into another Great Depression
- TARP provided crucial assistance to small businesses, community banks, American automakers, and struggling homeowners.
- TARP did all this at a cost dramatically lower than first expected. Treasury currently forecasts that TARP will cost approximately $70 billion – just one-tenth of the $700 billion originally authorized.
- American taxpayers have already recovered more than 81 percent ($337 billion) of the TARP funds disbursed to date ($415 billion), and we have proposed to ensure they are repaid in full by enacting a Financial Crisis Responsibility Fee.
- TARP's bank programs have turned a more than $10 billion profit for taxpayers.
- No More TARPs. The Obama Administration worked tirelessly with Congress to enact the Dodd-Frank Act Wall Street Reform and Consumer Protection Act, which ends taxpayer-funded bailouts.
So here are some important details about TARP that you may not hear people talking about when discussing that program.
TARP, ARRA, and Other Targeted, Temporary Government Support for the Private Sector Helped Prevent a Second Great Depression. In a July 2010 paper, Mark Zandi (a former economic adviser for Senator John McCain’s presidential campaign) and Alan S. Blinder (a former economic adviser for President Clinton) estimate that in 2010, without the federal government’s response to the financial crisis, including TARP and the American Reinvestment and Recovery Act, GDP would be 11.5 percent lower, there would be nearly 8.5 million fewer jobs, the unemployment rate would exceed 15 percent, and the nation would now be experiencing deflation. They write that the federal government’s policies “probably averted what could have been called Great Depression 2.0.”
TARP Helped Main Street Banks and Small Businesses. TARP invested in more than 450 small and community banks. Moreover, lending at banks with less than $1 billion in assets that received TARP funds has grown more than at those that did not. And because small banks are a crucial source of credit for small businesses, TARP assistance for main street banks is helping provide the financing that small businesses need to expand and create jobs.
TARP Protected US Manufacturing and Jobs by Helping to Save the American Auto Industry. In the twelve months before President Obama took office, American auto companies lost hundreds of thousands of jobs, sales plunged 40 percent, and liquidation was a very real possibility. TARP investments in GM and Chrysler, as well as the hard decisions made by those companies in order to adapt and compete in the 21st century, have helped turn the industry around and save one million jobs. Since GM and Chrysler have emerged from bankruptcy, the auto industry has added more than 200,000 jobs – the strongest growth in more than a decade – and for the first time since 2004, all of the big three auto companies are operating at a profit.
TARP Provided Immediate Relief to Struggling Homeowners. To date, more than 1.7 million homeowners have started a trial modification under the Home Affordable Modification Program SM (HAMP SM), and more than 850,000 homeowners have received permanent modifications reducing their mortgage payments by an average of over $520 every month. HAMP has set standards and expectations for mortgage modifications across the industry. At the same time, HAMP wasn’t designed to prevent every foreclosure, and it wasn’t a bailout for irresponsible homeowners. The program protected taxpayers by targeting homeowners with real hardship who were committed to staying in their homes and who kept up with their payments.
TARP is Now Expected to Cost Approximately $70 Billion – A Fraction of the $700 Billion Originally Authorized. Substantial increases in TARP repayments and declines in expected TARP expenditures have dramatically reduced the projected cost of the program. Treasury is now confident that the lifetime cost of TARP will be approximately $70 billion – just one-tenth of the $700 billion originally authorized. As a share of GDP, the government’s financial interventions to address the financial crisis are now expected to cost less than the GAO’s estimate of what it took to clean up the Savings and Loan Crisis in the 1980s.
Taxpayers Have Already Recovered 81 Percent of the TARP Funds, and We Want to Make Sure Taxpayers Are Repaid in Full. Taxpayers have already received a combined $337 billion in revenue from TARP investments -- more than 81 percent of the funds disbursed to date ($415 billion) through the program. Taxpayers have already realized a more than $10 billion profit from TARP's bank programs. And the Administration remains committed to passing a Financial Crisis Responsibility Fee to make sure taxpayers are fully repaid for any remaining costs of TARP.
TARP is Ending. After October 3, 2010, no new TARP investments can be made. Additionally, the Dodd‐Frank Wall Street Reform and Consumer Protection Act capped TARP purchase authority at $475 billion, down from the $700 billion originally allocated. But even before Wall Street Reform, Treasury was already well on its way to winding down many TARP programs, and planned to invest significantly less than $700 billion.
No More TARPs. A program like TARP will never be necessary again. President Obama and Treasury Secretary Geithner worked tirelessly with Congress to enact the Dodd-Frank Act, which will ensure that the American people are never again put on the hook for the reckless acts of a few financial firms. That law gives the government new tools to shut down and dismember failing institutions, rather than bail them out with taxpayer dollars.
Unprecedented Transparency. Treasury has published hundreds of reports on TARP investments, including TARP Transaction Reports; monthly congressional reports; dividend and interest reports; Making Home Affordable © Program reports, and numerous of other disclosure documents, all of which are public and posted on our website, www.financialstability.gov.