1. TARP Troubled Assets Relief Program
Yi Zhuang
BA 543

2. Agenda Subprime Mortgage Crisis About TARP
The Positive Effects of TARP
Controversy about TARP

4. Subprime Mortgage Crisis
Causes of the Crisis:
Housing Prices Peak in 2006
Subprime Borrowers
Housing Prices Drop Late
High Mortgage Defaults and Foreclosures

5. Companies Failed During Crisis
New Century Financial Corporation
Kaupthing Singer & Friedlander
American Freedom Mortgage
Yamato Life
American Home Mortgage
Circuit City
Bernard L. Madoff Investment Securities LLC
Banco Privado Portugues
Charter Communications
Allco Finance Group
Lehman Brothers
Waterford Wedgwood
Linens’n Things
Saab Automobile
Mervyns
BearingPoint
NetBank
Tweeter
Terra Securities
Chrysler
Sentinel Management Goroup
General Motors
Washington Mutual
Icesave

6. Main Events in 2008
The Federal Housing Finance Agency announced that it had placed Freddie Mac and Fannie Mae into conservatorship
Lehman Brothers announced it was filing for bankruptcy
Merrill Lynch agreed to be sold to Bank of America for approximately $50 billion
AIG sought a $40 billion bridge loan from the Federal Reserve Board to stay in business
The Dow Jones Industrial Average fell 500 points

7. About TARP
Fundamental Part of the Emergency Economic Stabilization Act of 2008
The purpose of TARP was to restore the liquidity and stability of the U.S. financial system which was near collapse at the end of 2008.
Current numbers show its final costs to be far lower.
In september

8. About TARP (con’t)
Initial investment was up to $700 billion
Actual expenditures: $431 billion
Recovered 94% of the funds ( )

11. TARP & Citigroup
A trust-preferred security is a security possessing characteristics of both equity and debt issues allow the deferral of interest payments for up to 5 years
they will be treated as capital (equity/own funds) rather than as debt for regulatory purposes. This is why trust preferred securities are issued overwhelmingly by bank holding companies,
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Trust Preferred Securities Sold to the Government via TARP
34% Owned by Taxpayers

12. The government invested $245 billion and has gotten $252 in repayments--a profit of $7 billion.

13. TARP's Five Program Areas
Dec. 2008: TARP funds spent on any program that deemed necessary to alleviate the financial crisis.
Bank
Auto Industry
AIG
Credit Market
Housing
245B
82B
70B
27B
46B
$79.7 billion in loans and capital injections to automakers and their financing arms through the Automotive Industry Financing Program.
$45.6 billion for homeowner foreclosure assistance.
$67.8 billion to purchase preferred shares of American International Group (AIG)
TARP’s credit market programs played a key role in helping to restart the markets that provide financing for auto loans, credit cards, mortgages, and small business lending.
established several programs to help struggling homeowners avoid foreclosure.

14. The Positive Effects of TARP
Economic Antifreeze
Withdrawing Money from the Banks
Revving up the Auto Industry
Saved 8.5 M Jobs
t served a critical function in terms of providing liquidity at a time that it was needed to counter a panic in financial markets, without government support of financial institutions, the financial crisis would have taken on far greater proportions.
In 2010, GM saw its largest profits since 1999, and the company has also recently announced 4,000 new jobs. In addition, Chrysler has paid back more than $10.6 billion of its $12.5 billion in TARP loans,
Bailout the financial institutions & avoid panic during crisis.

15. Controversy of TARP
TARP Cost Taxpayers Hundreds of Billions of Dollars
TARP Was a Gift for Wall Street that Did Nothing for Main Street
TARP Was a Quick Fix for the Market Meltdown but Left our Financial System Weak
TARP Was the Centerpiece of a Strategy by President Obama to Assert More Government Control Over the Economy
Banks that received bailout money had compensated their top executives nearly $1.6 billion in 2007, including salaries, cash bonuses, stock options, and benefits including personal use of company jets and chauffeurs, home security, country club memberships, and professional money management.[73] The Obama administration has promised to set a $500,000 cap on executive pay at companies that receive bailout money,[74] directing banks to tie risk taken to workers' reward by paying anything further in deferred stock
heads I win, tails the government bails me out' mentality.
poll showed that only 42 percent of the public believed that TARP helped to prevent a more severe economic crisis. A July poll by Pew also showed, however, that only 34 percent of people knew that TARP was enacted under President Bush, not Obama.
TARP may have helped stave off a depression, but many Americans still find themselves without jobs
insisted on an equity stake in the financial firms." This greater stake would have given the government far greater returns when companies like Bank of America and Citigroup recovered profits shortly after TARP's inception.
Although it bailout some giant companies, giving them second change to survive. This gov’t temporary redemption did not fix the root of the problem, the financial sustem is still very weak.

16. Thank You & Qs?