Many people have argued about the wisdom of the \"TARP\" program that was implem

Question

Many people have argued about the wisdom of the "TARP" program that was implemented late in the Presidential term of President George W. Bush with the full approval of the Congress. One of the main features of the program resulted in the Treasury department purchasing hundreds of billions of dollars of assets of companies like AIG to prevent a financial meltdown of many large financial companies. Briefly comment on the impact on the economy of this effort and explain what could have happened had this program (or something similar) not been implemented.

Explanation / Answer

TARP has made things worse than making it any better. TARP forced US banks to take unwanted, high-cost capital injections rather than making them shed bad assets, merge and raise private capital.

TARP contributed to the crisis of September-October 2008 than preventing it. In 2008, the U.S. Treasury compelled US banks to take overly-coslty capital, instead of shutting down the few insolvent banks (like Citigroup).

Had this program not got implemented, crisis would have not spread across US and across hundreds of its banks. Banks would not been forced to take these unnecessary expensive capital.

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