relief program

Troubled Assets Relief Program

The authority to establish and manage a Troubled Assets Relief Program (TARP) became law 3 October 2008 as part of a proposed bailout of the U.S. financial system after the passage of H.R. 1424, which enacted the Emergency Economic Stabilization Act of 2008. The law which created the fund gives the Treasury $250 billion immediately, then requires the President to certify that an additional $100 billion in funds are needed, and finally $350 billion are subject to Congressional approval.

The program is run by the Treasury's new Office of Financial Stability. According to the official summary of the Legislation creating the fund, the Secretary of the Treasury may use the fund "to buy residential and commercial mortgage loans, credit card securitizations, auto loans and other financial assets for which there is no current market." Companies that sell their bad assets to the government must provide warrants so that taxpayers will benefit from future growth of the companies. The President is to submit a law to cover taxpayer losses on the fund, using "a small, broad-based fee on all financial institutions." In order to participate in the bailout program, "companies will lose certain tax benefits and, in some cases, must limit executive pay. In addition, the bill limits 'golden parachutes' and requires that unearned bonuses be returned." The fund has an Oversight Board so that the U.S. Treasury cannot act in an arbitrary manner. There is also an inspector general to protect against waste, fraud and abuse.

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