It was signed into law by President George W. TARP's original purpose was to increase the liquidity of the money markets and secondary mortgage markets by purchasing the mortgage-backed securities MBS , and through that, reduce the potential losses of the institutions that owned them.
Later, TARP's aim was modified slightly to allow the government to buy equity in banks and other financial institutions. TARP funds were used to purchase stock in banks, insurance companies, and auto-makers, and to loan funds to financial institutions and homeowners.
The U. The provisions of TARP demanded that companies involved lose certain tax benefits and, in many cases, placed limits on executive compensation and forbade fund recipients from awarding bonuses to their top 25 highest-paid executives.
The government also claimed that TARP prevented the American auto industry from failing and saved more than one million jobs, helped stabilize banks, and restored credit availability for individuals and businesses. TARP is still controversial. Advocates say it saved the U. Even so, economists, politicians, and financial professionals still debate TARP's merits and wonder if it had been necessary. Critics charge the program did little to help the housing markets, which remained depressed for years.
Some say it did not go far enough—that the government should have insisted on an equity stake in the financial firms it was bailing out to control their future practices. Instead, critics opine that TARP's no-strings loans essentially acted as a reward for bad behavior, sending a message of "act irresponsibly and we'll help you out"—and establishing a dangerous precedent of dependency.
TARP also did not endear the government to the American public, which saw Wall Street reap benefits—including those notorious bonuses—and return to profitability, even as individuals struggled with debt, unemployment, and foreclosures in the wake of the Great Recession.
International Markets. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. The money was being given to the banks, we were told, to buy up bad mortgages from the banks and modify them to help borrowers, to stimulate lending to small businesses, and other activities meant to inject capital and confidence into the reeling financial system. Myth 1: TARP funds were to be used to help consumers with small business loans, mortgage relief and other assistance.
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