If you read "The Letter" post on my parent blog site AmeriKad, or have been following the news, you may have heard about a program called TARP. But what exactly is TARP?
First, let's take a look at what led up to the creation of this program. The problem began with banks that made home loans to consumers who couldn't afford to pay them back. These mortgages were then sold to Wall Street investors who then sold these "mortgage-backed securities" ("What is Congress" 1) to other investors. Eventually, these investors realized that they had invested in securities that were losing money because homeowners began to default on their mortgages. Naturally, these investors sought to sell out these securities and cut their losses.
So many investors participated in the mortgage-backed security market, that virtual every aspect of the US banking and financial services sector was deeply, and negatively affected. In layman's terms; banks were losing money, and losing it fast. Because of this, they began hoarding money, not loaning it out to anyone. This resulted in mass unemployment, and the laying off of employees by large and small businesses alike.
Now comes the involvement of the government, and the creation of TARP, or Troubled Assets Relief Program. To address the growing economical and financial problem, the government authorized the United States Treasury to spend over $700 billion to stabalize the economy through TARP on October 3rd 2008.
TARP was designed to take bad mortgages out of the hands of American banks, and into the hands of the federal government. TARP takes the "toxic" ("The Troubled" 2) mortgages out of the financial system, and allows the credit needed to fuel the economy to be issued.
The problem is that there is a lack of certainty about the value of mortgage assets, and trading in them has virtually ceased. Because these toxic loans are stuck on the balance sheets of banks, these institutions are unable to issue new productive loans.
So whats the hype about?
The issues here are money, and transparency.
As I explained previously, TARP takes the debt of the failed mortgages from the banks and brings it to the federal government. The problem is that it's not just the federal government that is taking on this debt; it's the American taxpayers. That's billions of dollars of debt that the American taxpayers now owe.
Transparency is an issue as well; neither the Obama administration nor Congress have presented a reasonable plan as to how we're going to pay this debt off. It is generally accepted that to pay off such a high debt, we would need to increase taxes. And we all know an increase in taxes is not something anyone wants.
If you would like to view the legislation that proposed TARP, visit The Trouble Asset Relief Program. This site gives the full text of the bill, and background information as well.
What do you think? Post your opinions, and weigh in on the subject. I'd love to hear what you think.
-Kaydee
Bibliography
"What is Congress doing to help the nation's economy?" 2 Feb. 2009. Jeff Bingaman. 19 June 2009 <http://www.bingaman.senate.gov/>.
"The Trouble Asset Relief Profram." TARP. 19 June 2009 <http://www.troubled-asset-relief-program.net/>.
First, let's take a look at what led up to the creation of this program. The problem began with banks that made home loans to consumers who couldn't afford to pay them back. These mortgages were then sold to Wall Street investors who then sold these "mortgage-backed securities" ("What is Congress" 1) to other investors. Eventually, these investors realized that they had invested in securities that were losing money because homeowners began to default on their mortgages. Naturally, these investors sought to sell out these securities and cut their losses.
So many investors participated in the mortgage-backed security market, that virtual every aspect of the US banking and financial services sector was deeply, and negatively affected. In layman's terms; banks were losing money, and losing it fast. Because of this, they began hoarding money, not loaning it out to anyone. This resulted in mass unemployment, and the laying off of employees by large and small businesses alike.
Now comes the involvement of the government, and the creation of TARP, or Troubled Assets Relief Program. To address the growing economical and financial problem, the government authorized the United States Treasury to spend over $700 billion to stabalize the economy through TARP on October 3rd 2008.
TARP was designed to take bad mortgages out of the hands of American banks, and into the hands of the federal government. TARP takes the "toxic" ("The Troubled" 2) mortgages out of the financial system, and allows the credit needed to fuel the economy to be issued.
The problem is that there is a lack of certainty about the value of mortgage assets, and trading in them has virtually ceased. Because these toxic loans are stuck on the balance sheets of banks, these institutions are unable to issue new productive loans.
So whats the hype about?
The issues here are money, and transparency.
As I explained previously, TARP takes the debt of the failed mortgages from the banks and brings it to the federal government. The problem is that it's not just the federal government that is taking on this debt; it's the American taxpayers. That's billions of dollars of debt that the American taxpayers now owe.
Transparency is an issue as well; neither the Obama administration nor Congress have presented a reasonable plan as to how we're going to pay this debt off. It is generally accepted that to pay off such a high debt, we would need to increase taxes. And we all know an increase in taxes is not something anyone wants.
If you would like to view the legislation that proposed TARP, visit The Trouble Asset Relief Program. This site gives the full text of the bill, and background information as well.
What do you think? Post your opinions, and weigh in on the subject. I'd love to hear what you think.
-Kaydee
Bibliography
"What is Congress doing to help the nation's economy?" 2 Feb. 2009. Jeff Bingaman. 19 June 2009 <http://www.bingaman.senate.gov/>.
"The Trouble Asset Relief Profram." TARP. 19 June 2009 <http://www.troubled-asset-relief-program.net/>.
No comments:
Post a Comment