So far, seven assistance programs were introduced: the Troubled Asset Relief Program (TARP), the Term Asset-Backed Securities Loan Facility (TALF), the Capital Assistance Program (CAP), the Commercial Paper Funding Facility (CPFF), the Temporary Liquidity Guarantee Program (TLGP) and the Public-Private Investment Program (PPIP).
The Troubled Asset Relief Program (TARP) is a program of the United States government to purchase assets and equity from financial institutions. TARP allows the Treasury to purchase both "troubled assets" and any other asset the purchase of which the Treasury determines is "necessary" in order to further economic stability. Troubled assets include real estate and mortgage-related assets and securities based on those assets. This takes into account both the mortgages themselves and the various financial instruments created by pooling groups of mortgages into one security to be bought on
the marketThe goal of TARP is to encourage banks to resume lending again at levels seen before the crisis. TARP should theoretically allow banks to increase lending instead of hoarding cash to cushion against future, unforeseen losses from troubled assets. Increased lending equates to 'loosening' of credit, which the government hopes will restore order to the financial markets and improve investor confidence in financial institutions and the markets. As banks gain increased lending confidence, the interbank lending interest rates (the rates at which the banks lend to each other on a short term basis) should decrease, further facilitating lending.
On June 9, the U.S. Treasury approved 10 banks to buy back $68 billion of government shares, reducing officials authority to intervene in everything from lending and hiring strategies to compensation policies. Although the Treasury did not identify the banks, people briefed on the situation said they include American Express, Bank of New York Mellon, the BB&T Corporation, Capital One Financial, Goldman Sachs, JPMorgan Chase, the State Street Corporation and US Bancorp. All passed the stress test and applied to return their TARP funds. Another bank, Morgan Stanley, which needed to raise $1.8 billion after the stress test, was also said to have received permission, as was Northern Trust, a large custodial bank that did not undergo the stress test. The $68.3 billion represents about a quarter of the TARP money given to banks. So far, 22 small community banks have been allowed to return $1.9 billion in government money.
On June 17, the government received $68B from 10 financial firms that paid back TARP funds, with some of the firms promising to immediately start negotiating the repurchase of government warrants. TARP funds were repaid by JPMorgan Chase, Morgan Stanley, Goldman Sachs, American Express, Capital One Financial, BB&T, U.S. Bancorp, Bank of New York Mellon, Northern Trust and State Street.
As of July 9, $598 billion had been allotted, and $367 billion spent, according to the Committee for a Responsible Federal Budget. In June, 35 small banks received $390 million of TARP money. Moreover, from $22 billion the Treasury had planned to inject into six insurers which might have problems with paying claims and retirement stipends only $4.35 billion was distributed. Hartford Financial Services Group Inc has taken $3.4 billion, the maximum it was allowed. Four of the other five insurers decided not to take bailout funds. The sixth, Lincoln Financial Group accepted up to $950 million.
News
Quantitative Easing is Helping Wall Street Traders
Quantitative easing and other unconventional monetary policy measures did not have the positive results that many economists and politicians expected. In fact, it remains exceptionally difficult to get credit. However, it is indisputable that these measures of mass liquidity deployed by central bankers over the last 18 months are having a positive impact on investors' confidence judging by the recent performance of the world's stock markets. Still, the jury is still out and it may take years to assess the full influence of quantitative easing on the economy.
Published on 2009-12-09
Debt Bubble May Hamper Global Recovery
Last week's announcement that Dubai World could no longer service its outstanding debt highlighted the fact the world economy remains fragile. Indeed, the burst of a debt bubble may be next in the line, after a series of devastating asset and housing bubbles.
Published on 2009-12-03
A Weak US Dollar in Not in the Long-Term Interest of China
Since July 2008, China has kept the value of Yuan close to 6.82 per US dollar, oscillating around very narrow band. And like the dollar, the Renminbi has been falling against other currencies, not only undermining the reduction of global imbalances but also making exports from other countries less competitive against cheaper Chinese products.
Published on 2009-11-04
Consumer Confidence in U.S. Unexpectedly Falls
Confidence among U.S. consumers unexpectedly fell in October for a second month as Americans fretted about a lack of jobs.
Published on 2009-10-27
Global Recovery More Important Than Currency Intervention
Last week, Brazil announced the implementation of a 2% tax on capital inflows for fixed income and equities. Apparently, this decision was intended to prevent a bubble in the Bovespa and stop the Brazilian real for appreciating any further. However, although there is more and more discussion about the damaging effect of high/low exchange rates it is unlikely that any significant coordinated action will take place in the near future.
Published on 2009-10-23
Group of 20 Agrees on Far-Reaching Economic Plan
Group of 20 leaders said they will crack down on risk-taking by banks and better align economic policies as they turned from crisis management to delivering a new set of rules for the world economy.
Published on 2009-09-26
G20 Meeting Is Crowded With Conflicts of Interest
This week, leaders of the Group of 20 leading nations are meeting in Pittsburg. This meeting is happening the third time in less than a year and the agenda is expected to include calls for bigger financial markets regulations, global intervention to trim down trade imbalances and further discussion over protectionism. But with so many different interests in the same table will the major economies have the ability to solve some important issues?
Published on 2009-09-24
A Trade War Between China and the US Will Damage Both Economies
Last week, President Barack Obama announced the United States would impose tariffs of up to 35% on tires from China. In response, Chinese government pledged dumping and subsidy probes of chicken and auto products from the US. However, regardless of which country is right or wrong, those protectionism moves are leaving both countries in very difficult position because by entailing trade restriction they can equally loose.
Published on 2009-09-16
Government Spending May Lead US into a Double dip Recession
Government spending is rising day-by-day. The list includes: $787bn spent for the fiscal stimulus, at least $600bn for the TARP funding, unlimited resources for bank takeovers, loans to the financial institutions, and so on. But on the wake of declining tax revenues, how are those programs being financed? And more importantly, who is paying for it?
Published on 2009-07-23
US Government Bailout (Update)
The lending capacity of the United States financial system has declined significantly over the last eighteen months as huge losses on loans and toxic
securities have smashed capital in the financial sector. Hence, in a attempt to inject additional liquidity into the financial system, the U.S. Treasury along
with the Federal Reserve has set out a series of programs to clean up the balance sheet of distressed financial institutions.
Published on 2009-07-09
A Look to European Stimulus Plans
Since the beginning of the global financial crisis, European governments have been criticized for falling short of implementing a coordinated fiscal stimulus. However, although European countries have been slow in applying the stimulus packages, they haven’t stayed much behind the United States.
Published on 2009-07-05
Public Debt May Rise To Unsustainable Levels
The term “too big to fail” has led to several bailouts and to an unprecedented increase in public debt. Indeed, the gross public debt of the ten richest countries in the world will grow by $9 trillion in the next three years reaching 106% of GDP, up from 78% in 2007, according to International Monetary Fund. More importantly, although there is little danger that countries will default on its bonds, it will take generations to pay for all this debt.
Published on 2009-06-24
World Bank Cuts Forecast for Global Growth
The World Bank said the global recession this year will be deeper than it predicted in March and warned that a flight of capital from developing nations will swell the ranks of the poor and the unemployed.
Published on 2009-06-22
Government Bailouts and Weapons of Mass Liquidity
The lending capacity of the United States financial system has declined significantly over the last eighteen months as huge losses on loans and toxic securities have smashed capital in the financial sector. Hence, in a attempt to inject additional liquidity into the financial system, the U.S. Treasury along with the Federal Reserve has set out a series of programs to clean up the balance sheet of distressed financial institutions.
Published on 2009-05-31
Comparing Stimulus Plans across the G20
With interest rates close to the zero, many countries have turned to fiscal stimulus to prevent their Gross Domestic Product from declining further. However, despite their common goal, some will fail, others will succeed.
Published on 2009-05-31
The IMF Is Receiving an Upgrade. Will it Work?
Not a long time ago, many investors were questioning the need of the International Monetary Fund. However, with the worsening of the global financial crisis, the need for a lender of last resort has emerged, bringing the organization to the light again. But, will the IMF be able to help the world’s economy and is the institution really necessary for overseeing the global financial system?
Published on 2009-04-28
U.S. Weapons of Mass Liquidity
The lending capacity of the United States financial system has declined significantly over the last eighteen months as huge losses on loans and toxic securities have smashed capital in the financial sector. Hence, in a attempt to inject additional liquidity into the financial system, the U.S. Treasury along with the Federal Reserve has set out a series of programs to clean up the balance sheet of distressed financial institutions.
Published on 2009-04-21
G20 Agrees $1,100bn to Fight Crisis
World leaders on Thursday agreed to “fight back” against the global recession with $1,100bn in funding for the International Monetary Fund, regional development banks and international trade finance, but did not commit themselves to a new round of fiscal stimulus.
Published on 2009-04-02
Will the G20 Be Able to Fix the Global Economy?
On April 2, leaders from twenty of the world’s most advanced and emerging countries will meet in London to discuss a way to pull out the global economy out of the financial crisis. But has the so called G20 Group any ability and legitimacy to solve this difficult problem?
Published on 2009-03-25
U.S. Treasury Announces $1 Trillion Toxic-Debt Plan
The U.S. Treasury announced a plan aimed at financing as much as $1 trillion in purchases of distressed assets to help a financial system that is “still working against recovery.”
Published on 2009-03-23