Current State of Government Bailout Programs

Current State of Government Bailout Programs

In response to the subprime mortgage crisis, the Emergency Economic Stabilization Act of 2008 was enacted. The act included the Troubled Assets Relief Program of 2008 (TARP). TARP earmarked $700 billion to fund the purchase of toxic assets from financial institutions in crisis. By the end of the first quarter of 2009, all but $135 Billion of the initial $700B had been spent (Washington Times, 2009).

Critics of the bailout program were concerned about the size of the program, which they felt rewarded institutions for poor judgment and lack of oversight. Others feared that the large amount was still not enough to solve the problems and would only be the beginning of bailout money needed.

Those fears were apparently realized with a second large intervention called the American Recovery and Reinvestment Act (ARRA) of 2009. The ARRA is a stimulus package, not a bailout program, and was designed to invest money—worth $787 billion—into US infrastructure, jobs, energy, science, assistance to the unemployed, and other social programs. Shortly after the passage of the ARRA, stories began leaking in the news media about corporate symbols of a "bailout gone bad." High profile organizations like AIG, which the government had bailed out in 2008, came under fire when the company awarded $165 million in executive bonuses after accepting $170 billion in bailout money. Other organizations were caught taking luxury vacations and sponsoring large corporate events, while at the same time accepting government and taxpayer help.

In spite of the large bailout packages, the US saw twenty-nine new bank failures in the first four months of 2009—up from twenty-five in 2008 (The Economic Times, 2009). In addition, critics claim that the $787 billion plan is reported to be open to fraud and loss for taxpayers. It is unclear what the results will be of large bank bailouts, since they cannot determine the actions of bank management in the future. However, many in the private and government sectors believe that in the long term, bailouts are a necessary action to avoid crises, or severe fluctuations, in the US economy.

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