Trouble Asset Relief Program: Money Trail

Introduction

TARP or “Trouble Asset Relief Program”, as it is known in full, was a cleverly figured out scheme by the government of the United States of America (Dimsdale, 2), unlike the construction of area 51. Honestly, much credit should be given to the then government for this ingenious plan. This program was officially signed into law by the then president W. Bush on the 3rd of October 2008 and was part of the insignificant 700 billion dollars of taxpayer’s money to bail out banks (PROPUBLICA, 1). Today we unravel the mystery that is this program.

TARP Money Trail

A liability was almost the term that was used to describe mortgage securities i.e. they had become toxic (MSNBC). Originally, a right of submitting bidding prices was given to banks by TARP. Each time, the administrators of TARP selected only the bids that were considered the lowest of these securities by banks. Unfortunately, it was clear that sooner rather than later, treasury was eventually going to have bought and paid for quite a huge amount. This generated fears from the banks in the sense that there was nothing much for them to gain and hence the shelving of the whole plan.

This seems to have prompted the treasury to jump into plan B. This plan involved the use of about 105 billion dollars of funds in TRAP for the purchase of stocks that had been preferred in 8 different banks. Again this is a very negligible amount of money that even if it were to get lost there would be no impact on the government. These banks included Citigroup, Morgan Stanley, Wells Fargo, State Street, Merrill Lynch, J.P. Morgan, Gold Sachs and finally the all famous Bank of New York Mellon (USATODAY, 1). Community banks are known to have received only up to 92 billion dollars while the bank of America and Citigroup received the small token of up to 45 billion dollars combined. This was almost like loose change being handed to these banks.

Therefore other than the 20 billion dollars, additional fund was given as a loan to the Reserves that it could launch its TALF (Term Asset Loan Facility) program (Federal Reserve System, 1). This subsidiary or a by the way program was intended to act just as a secondary market. This thus was to enable the all too important banks create new loans as the Fed works on buying the old loans and eventually ensuring that the banks did continue to make profits. All of these hustles by the Feds were so as to restore the much needed trust in the markets that are concerned with our finances (Goodfriend, 4). Honestly though if the Feds could have found another way, they would have because they were literally making these banks beg for the insignificant money. This very noble move by the Feds has anyway eventually seen a shortening recession.

Warranted Use of TARP Funds

Hey, if someone was to give you just a million dollars right now and even tell you that you were to repay back each and every single cent of it at a later time in future, please do not tell me that you would not spent a few dollars on a bottle of champagne to celebrate your acquisition. Would you not want to buy that pretty car that you have always dreamed of and eventfully lead you to having a date with this pretty girl that you have been competing with someone for their affection? What you would be doing in the long run is buy off any kind of competition and leave you and you alone as the big dog chewing the bone and the rest just some immature puppies fighting over synthetic imitations of a bone. And honestly, this is what these banks have only been doing: Spending a few of your hard earned so called taxpayers’ money for a few things here and there. After all, it is not as if they used the whole 700 billion dollars that they were supposedly supposed to have consumed, they only used about half of that money, surely cut them a slack and congratulate them for having spent wisely what can only be equated to some of your pocket change that remained after doing your groceries.

It is a muddy world out there whereby only the wittiest are now bound to survive and clearly PNC bank has played its game nicely. To ensue that it was part of the biggest 5 banks in the United States of America, the bank set itself on a path of purchasing one of its long term rivals, National City. Let it be known that the rivalry was just due to the NFL between these two cities i.e. Cleveland and Pittsburgh.

The mortgage crisis had certainly become a big hit on the financial position of National City Bank. However National City thought it had seen the proverbial light at the end of the tunnel when TARP funds started trickling in but it was just rather the backlight of a Nokia phone. This was because it was denied funding from TARP (Blinder, 6). It is amazing that such a thing could happen in this country. I mean not even 10 million dollars could not be found for this bank? Or was it that maybe it had some of its board of chairmen from some funny state that Bush did not like very much. No wonder PNC seeing the opportunity came in with an offer only a mad man would refuse.

They set forth to buy off the Bank. At approximately 5.2 billon dollars in stock, National City was bought just a day after they had been denied TARP money. However the most interesting thing is that while PNC bought it, it used TARP money that it had been given. This begs the question of why would the government not give the TARP money directly to National Bank to enable it continue staying in business but rather choose to give PNC which later paid National City to keep it completely out of business (Adelino et al. 1).

Well the simple answer to this is that first of all, National City was not so good at begging for the money. They were too high up in the economy class that they felled b it embarrassed to beg for some pocket change from the representatives of the American people. So maybe the people in charge of the TARP did not really see their dire need for funding.

Secondly, on PNC receiving its share of TARP fund, the board of governors clearly saw that this bail out money could be best spent on expansion plans and after all, they have now become the 5th largest Bank in the United State of America and the government would definitely be wiling to spent a few more of the taxpayers money to ensure it does not collapse. The bank has officially joined the big boys club. This move seems to me to be quite justifiable. Furthermore, who cares about the personal rivalry between the two cities, this is business and it is not personal.

It is justifiable that these banks were never really told what to do with the money in the first place. Honestly though, this is small money and how do you even start planning on how to use it. It is no wonder that many of the banks saw this program as a windfall containing no strings whatsoever and hence could use the money even to acquire new properties. Further more the major goal was achieved i.e. liquidity was provided acting as an effective response to the financial crisis globally between 2008 and 2009. So who cares if the major goal was achieved with some outcry? Maybe it is because there was nothing new to be discussed in the media who saw this as a big story.

This TARP money event that is causing a public outcry due to buying other banks hence giving themselves bonuses should not really be such a fuss (Michael, 1). But on the other hand, why the so much outcry? This money as much as is taxpayer’s money has been given to the banks for their use. I mean if I was to give you money to buy pants and instead you opt to buy a bikini, why should I care, they are all clothes. Therefore the fact that these banks have opted for a better option that to them seems more promising, let them be after all, they are soon to pay for this in the Obama Administration (Burns, 1).

Other Bonuses on Bailout Money

Considering other misuse cases that have been reported, then the use of this Money in this way is just fine. It is reported that a majority of the companies that had received bail out money including banks saw an urgent need of addressing other issues first (Attkisson, 3). Rightfully these urgent issues included up to only 114 million dollars for lobbying and contributions to fund campaigns. Banks alone only used approximately 1.6 billion dollars in 2007 to compensate their bank executives who mostly reside at the top level. It is even interesting to note that they have not yet gone on strike for being undercompensated.

I mean who would not want to compensate their employees for the hardships that they had to go through first hand (Duchin and Sosyura, 254). These top executives knew first hand that they were almost losing their jobs due to the collapsing market and had suffered psychological torture and more to that had worked really hard to ensure that these banks do not collapse. So giving them a small bonus like 1.6 Billion shillings is not bad after all for start. This is because maybe later on if more TARP money was to come by, say at least 5 billion collars for compensation is not bad.

Many more benefits created a fuss. These included salaries, use of jets that belonged to the company and many others (Goldman, 3).Despite all these fuss, these people simply deserved this money because in the first place their employing banks were never told how to spend the TARP fund. The government is in effect giving the banks money without telling them how to use it and when our friend out there in the media catch a glimpse of how their other friend in the banking business are taking home some good well deserved pays, they start causing all this commotion in the news therefore even if it is the taxpayers money (Chase, 1), these top executives are also taxpayers and to think that they also do not feel the pinch that someone is talking home such a hefty pay in the middle of a financial crisis is just a lie. It is only that they are not complaining about it.

Conclusion

It is just clear that everything that these banks are trying to do with their money will eventually face a negative criticism especially in the news. The bailout money that the banks might use to buy other banks or give themselves is just okay since they deserve the money. Moreover, this money was given to them without any strings attached (Kormai, 3). It is funny that even the Obama administration is jealous of this fact that they are thinking of taxing banks in an effort to recover between 120 and 141 billion dollars that they think they will lose as a result of the TARP program (Adelino et al. 25). America is rich and 700 billion of dollars should not raise any controversy. Let these people enjoy the small pocket change in piece and stop acting like you are in a 5th world economy if ever it existed.

Works Cited

Adams Michael. I want My Bailout Money. 2008. Web.

Adelino Manuel et al. Why Don’t Lenders Renegotiate More Home Mortgages? Red faults, Self-Cures and Securitization. 2009. Web.

Attkisson Sharyl. Where is The Bailout Money Really Going? 2008. Web.

Blinder Arthur. Six Errors on the Path to Financial Crisis. New York Times. 2009.

Burns Adrian. Huntington’s TARP deal Profitable for Government. 2010. Web.

Chase Morgan. Where’s the Bank Bailout Money? 2008. Web.

Dimsdale John. Where Does Bailout Money Come From? 2008. Web.

Duchin Rael & Sosyura Daniels. TARP Investments: Financial and Politics. Ann Arbor. 1001. 2009.

Federal Reserve System. Press Release. 2009. Web.

Goldman David. CNNMoney.com’s bailout tracker. 2009. Web.

Goodfriend Martin. Central Banking in the Credit Turmoil: An assessment of Federal Reserve Practice. Unpublished, Carnegie-Mellon University. 2009.

Kormai Johnson. The Soft Budget Constrain. Kyklos 39(1) Wiley Online Library, 1986.

MSNBC. Companies Start Competing for Bailout Money. 2008. Web.

PROPUBLICA. Where is The Money? Eye on the Bailout. 2010. Web.

USATODAY. Who Has Gotten Financial Bailout (TARP) Money So Far? 2009. Web.

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BusinessEssay. 2022. "Trouble Asset Relief Program: Money Trail." November 15, 2022. https://business-essay.com/trouble-asset-relief-program-money-trail/.

1. BusinessEssay. "Trouble Asset Relief Program: Money Trail." November 15, 2022. https://business-essay.com/trouble-asset-relief-program-money-trail/.


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