In contrast to the programs described above, TARP housing programs have not been
wound down because these programs received funding commitments from TARP before October 2010 and have yet to disburse this all of that funding. But with the rest of TARP, no new commitments can be made after October 2010.
TARP instituted three relevant housing programs: the Making Home Affordable (“MHA”) program, the Hardest Hit Fund, and the Federal Housing Authority (“FHA”) Short Refinance program.69 The MHA program primarily assists borrowers with reducing monthly payments on first-lien mortgages and coordinating efficient short sales.70 The Hardest Hit Fund is focused on those states with the highest unemployment rates; the program specifically seeks to help individuals in those states make mortgage payments and reduce their overall principal.71 Finally, the FHA Short Refinance program enables individuals to refinance when their mortgages exceed the value of their homes.72
The GAO reports that, as of September 2014, 13.7 billion, or 36 percent, of the 38.5 billion in TARP housing program funding has been disbursed.73 Accordingly, each of the housing programs authorized under TARP remain ongoing, as the housing programs still have access to the funds allocated before the October 2010 cutoff applicable to all TARP programs. As described above, these funds were never disbursed to private borrowers, so that is why these programs still have unused funding. The Treasury has extended the time period to disburse these already allocated funds under the MHA program until December 2016, although officials have indicated that an earlier wind-down may occur depending upon “market conditions, program volume, and other factors.”74 Similarly states have until December 31, 2017, to commit funds for the TARP Hardest Hit fund; states are also allowed to continue to spend Hardest Hit funds after 2017 deadline.75 Finally, FHA’s short refinance program was expected to end on December 31, 2014, but was extended by two years until December 31, 2016.76 These disbursements are, of course, limited to the total funding provided to these programs before the October 2010 cutoff. Further extensions to disburse funds from these TARP housing programs beyond 2016/2017 is also feasible, as the EESA does not set explicit deadlines for when TARP programs can disburse unused funds.77 The TARP housing programs are subject to the same statutory scheme as the other TARP programs, but the Treasury makes clear that “the funds committed for
TARP’s housing programs were never intended to be recovered,”78 so long as the housing programs continue to operate within the basic parameters and budgets set forth in 2009 and 2010 under TARP. Such ongoing activity ensures that the GAO and other
organizations will continue to monitor the TARP wind-down in subsequent years.
A separate question remains. Could Congress “activate” TARP by passing legislation that repeals any prohibition in the EESA and Dodd–Frank on the use of TARP funds? While lending authority has expired, the shell of the program remains. While this is technically possible, it is, of course, politically impracticable in the current climate. One theoretical advantage to such an approach is that the “old” TARP authorities could be quickly
activated under similar terms as existed in 2008, instead of drafting language at the last minute like last time. However, this would not be the optimal solution, since it would be preferable to detail a new more detailed TARP that builds on lessons learned from the use of the old TARP.
The EESA TARP authorities are broad and undetailed. Section 101(a) authorizes the Secretary of the Treasury to establish TARP “to purchase, and to make and fund
commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary, and in accordance with this Act and the policies and procedures developed and published by the Secretary.”79
While the TARP bailout fund to deal with the 2008 banking crisis has expired, it bears mentioning that there is still a standing fund to deal partially with bank failures in the form of the deposit insurance fund. As of June 2014 this fund stood at $51.1 billion,80 and is financed on an ongoing basis by premiums paid by the banks at a rate of between 2.5 basis points and 45 basis points, depending on a bank’s risk category.81 This fund is basically designed to pay off depositors or assist in acquisitions or restructurings, but it can no longer be used for capital injections as part of open bank assistance. Section 1106(b) of Dodd–Frank effectively eliminated the systemic risk exception to the FDIC’s least-cost resolution obligation under the Federal Deposit Insurance Act, thereby
foreclosing this possibility. The DIF is not relevant to an OLA resolution, since it is only available when a bank is in receivership, and as designed by the FDIC under SPOE, OLA is intended to restructure only holding companies, not operating subsidiaries such as banks.
In any event, $51.1 billion is far short of what would be needed, in a 2008 repeat.
Notes
1. See Antonio Bernardo, Eric Talley, and Ivo Welch, A model of optimal government bailouts 2 (May 2011), available at
http://www.law.berkeley.edu/files/bclbe/Model_of_Optimal_Bailouts_0503.pdf.
2. Id. at 3.
3. Ben Bernanke, Chairman, Bd. of Governors of the Fed. Res. Sys., Current economic and financial conditions (Oct. 7, 2008), available at
http://www.federalreserve.gov/newsevents/speech/bernanke20081007a.htm.
4. Press Release, US Dept. of the Treasury, Statement by Secretary Henry M. Paulson, Jr.
on Actions to Protect the US Economy (Oct. 14, 2008), available at
http://www.treasury.gov/press-center/press-releases/Pages/hp1205.aspx.
5. European Stability Mechanism, About (2015), available at http://www.esm.europa.eu/index.htm.
6. Peter Spiegel, Eurozone bailout fund given power to “directly recapitalize” banks, Fin.
Times (Jun. 21, 2013), available at http://www.ft.com/cms/s/0/f910151a-d9f9-11e2- 98fa-00144feab7de.html#ixzz2rqmH5H87.
7. Dick Nanto. The US financial crisis: Lessons from Japan, CRS Report for Congress (Sep.
29, 2008), available at http://fpc.state.gov/documents/organization/110816.pdf.
8. Id.
9. Deposit Insurance Corporation of Japan, Operations of DIJC (2015), available at http://www.dic.go.jp/english/e_kikotoha/e_gyomu/index.html.
10. See Alex Pollock, TARP on a businesslike basis, Statement before the Congressional Oversight Panel of the Troubled Asset Program (Nov. 19, 2009), available at
http://cybercemetery.unt.edu/archive/cop/20110401231809/http://cop.senate.gov/documents/testimony- 111909-pollock.pdf.
11. 12 CFR pt. 208.
12. See Brookings Institute, Transcript of “The man in the middle of the TARP: A discussion with Treasury’s Neel Kashkari” (Jan. 8, 2009), available at
http://www.brookings.edu/~/media/events/2009/1/08- kashkari/20090108_kashkari.pdf.
13. See HM Treasury, Royal Bank of Scotland placing and open offer agreement (Oct. 13, 2008); see also Press Release, Royal Bank of Scotland, Trading update and capital restructuring (Jan. 19, 2009).
14. See Press Release, US Dept, of Treas., Treasury announces participation in Citigroup’s exchange offering (Feb. 27, 2009), available at http://www.treasury.gov/press-
center/press-releases/Pages/tg41.aspx; see also
AIG, Current report on Form 8-K (filed Jan. 14, 2011), available at
http://sec.gov/Archives/edgar/data/5272/000095012311003061/y88987e8vk.htm.
15. In January 2011, the US Treasury exchanged the preferred stock it purchased in November 2008 for AIG common stock. As highlighted in the related Form 8-K, this 2011 recapitalization diluted the holdings of existing AIG shareholders: “the issuance of AIG Common Stock in connection with the exchange for [preferred stock] will significantly affect the determination of net income attributable to common
shareholders and the weighted average shares outstanding, both of which are used to compute earnings per share.” Press Release, US Dept, of Treas., Treasury announces participation in Citigroup’s exchange offering (Feb. 27, 2009), available at
http://www.treasury.gov/press-center/press-releases/Pages/tg41.aspx; see also AIG, Current report on Form 8-K (filed Jan. 14, 2011), available at
http://sec.gov/Archives/edgar/data/5272/000095012311003061/y88987e8vk.htm. See also US Dept. of Treas., Treasury sells its final shares of AIG common stock, available at http://www.treasury.gov/initiatives/financial-stability/TARP-
Programs/aig/Documents/20121212_AIG_v8.jpg.
16. See Press Release, Citigroup, Citi to exchange preferred securities for common,
increasing tangible common equity to as much as $81 billion (Feb. 27, 2009), available
at http://www.citigroup.com/citi/press/2009/090227a.htm.
17. See Press Release, US Treas. Dept., Treasury converts nearly half of its ally preferred shares to common stock (Dec. 30, 2010), available at http://www.treasury.gov/press- center/press-releases/Pages/tg1014.aspx.
18. See Alex Pollock, TARP on a businesslike basis, Statement before the Congressional Oversight Panel of the Troubled Asset Program 2 (Nov. 19, 2009), available at
http://cybercemetery.unt.edu/archive/cop/20110401231809/http://cop.senate.gov/documents/testimony- 111909-pollock.pdf.
19. See Id; see also Charles Calomiris, Bank failures in theory and history: The Great Depression and other “contagious” events 9–10 (NBER, Working Paper 13597, Nov.
2007), available at http://www.nber.org/papers/w13597; Hearing before the
Congressional Oversight Panel Hearing to Examine Government Responses to Major Banking Crises of the 20th Century 4–5 (Statement of Eugene White, Mar. 2009),
http://cybercemetery.unt.edu/archive/cop/20110401231927/http://cop.senate.gov/documents/testimony- 031909-white.pdf.
20. See Charles Calomiris, Bank failures in theory and history: The Great Depression and other “contagious” events 9–10 (NBER, Working Paper 13597, Nov. 2007), available at http://www.nber.org/papers/w13597.
21. See Susanne Craig, Matthew Karnitschnig, and Aaron Lucchetti, Buffet to invest $5 billion in Goldman, Wall St. J. (Sep. 24, 2008).
22. See Charles Calomiris, Bank failures in theory and history: The Great Depression and other “contagious” events 4 (NBER, Working Paper 13597, Nov. 2007), available at http://www.nber.org/papers/w13597; see also Dinara Bayazitova and Anil Shivdasani, Assessing TARP, 25 Rev. Fin. Stud. 377, 378 (2012).
23. See Pietro Veronesi and Luigi Zingales, Paulson’s gift 5 (Oct. 2009), available at http://faculty.chicagobooth.edu/brian.barry/igm/P_gift.pdf. The concept of debt overhang was first formalized in Stewart C. Myers, The Determinants of Corporate Borrowing, 5 J. Fin. Econ. 147 (1977).
24. See Douglas Diamond and Raghuram Rajan, Fear of fire sales and the credit freeze 1 (BIS Working Paper 305, Mar. 2010), available at
http://www.bis.org/publ/work305.pdf.
25. Robin Greenwood, Samuel G. Hanson, and Jeremy C. Stein, A comparative-advantage approach to government debt maturity, J. Fin. 3 (forthcoming) (2015).
26. See Financial Crisis Inquiry Comission, The financial crisis inquiry report ix, 339 (2011), available at http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf.
27. Edmund Andrews and Michael Merced, Fed’s $85 billion loan rescues insurer, NY
Times (Sep. 16, 2008).
28. See Mark Landler and Steven Lee Myers, Congress grills Paulson and Bernanke on rescue plan, NY Times (Sep. 23, 2008).
29. See Carl Hulse and David M. Herszenhorn, House rejects bailout package, 228–205;
stocks plunge, NY Times (Sep. 29, 2008).
30. On September 29, 2008 the S&P500 opened at 1209.07 and closed at 1106.42, an 8.48 percent decline. Yahoo! Finance.
31. See David Herszenhorn, Bailout plan wins approval; Democrats vow tighter rules, NY Times (Oct. 3, 2008).
32. Emergency Economic Stabilization Act of 2008, Pub. L. No. 110–343, 122 Stat. 3765.
For a general discussion on how TARP could have been improved, see Charles
Calomiris and Urooj Khan, An assessment of TARP assistance to financial institutions, J. Econ. Perspect., 29 Spring 2015.
33. See Office of the Special Inspector General for the Troubled Asset Relief Program, Quarterly Report to Congress 76 (Jul. 28, 2011), available at
https://www.sigtarp.gov/Quarterly%20Reports/July2011_Quarterly_Report_to_Congress.pdf 34. See Mark Landler and Eric Dash, Drama behind a $250 billion banking deal, NY Times
(Oct. 14, 2008).
35. Office of the Special Inspector General for the Troubled Asset Relief Program, Quarterly Report to Congress 76 (Jul. 28, 2011), available at
https://www.sigtarp.gov/Quarterly%20Reports/July2011_Quarterly_Report_to_Congress.pdf 36. See Oversight of Implementation of the Emergency Economic Stabilization Act of
2008 and of Government Lending and Insurance Facilities; Impact on Economy and Credit Availability before the H. Comm. on Fin. Servs., 110th Cong. 7 (2008)
(statement of Alan S. Blinder, Professor of Economics and Co-director of the Center for Economic Policy Studies, Princeton University).
37. See Elizabeth Williamson, Rescue cash lures thousands of banks, Wall St. J. (Nov. 3, 2008).
38. See Office of the Special Inspector General for the Troubled Asset Relief Program, Quarterly Report to Congress 76 (Jul. 28, 2011), available at
https://www.sigtarp.gov/Quarterly%20Reports/July2011_Quarterly_Report_to_Congress.pdf 39. One of the initial nine institutions, Merrill Lynch, was acquired by Bank of America
and the $10 billion investment for Merrill Lynch was later provided to Bank of America after the acquisition.
40. See Office of the Special Inspector General for the Troubled Asset Relief Program,
Quarterly Report to Congress 77 (Jul. 28, 2011), available at
https://www.sigtarp.gov/Quarterly%20Reports/July2011_Quarterly_Report_to_Congress.pdf 41. Id.
42. See Capital Purchase Program, US Dept. of Treas., available at
http://www.treasury.gov/initiatives/financial-stability/programs/investment- programs/cpp/Pages/capitalpurchaseprogram.aspx.
43. Id.
44. For a list of banks issuing subordinated debts to the Treasury, see Transactions Report-Investment Programs, US Dept. of Treas., available at
http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp- transactions/DocumentsTARPTransactions/11-10-
11%20Transactions%20Report%20as%20of%2011-09-11_INVESTMENT.pdf.
45. See Timothy Massad, Report to Congressional Oversight Panel for Economic
Stabilization: Legal Analysis of the Investments by the US Department of the Treasury in Financial Institutions under the Troubled Asset Relief Program 3 (Jan. 27, 2009), available at
http://cybercemetery.unt.edu/archive/cop/20110402034824/http://cop.senate.gov/documents/cop- 020609-report-dpvaluation-legal.pdf.
46. As of March 6, 2015, two additional institutions had exited, bringing the tally of remaining institutions to 32. US Government Accountability Office, Troubled asset relief program: Winding down the Capital Purchase Program, GAO 15–367 2 (Mar. 6, 2015), available at http://www.gao.gov/assets/670/668904.pdf.
47. Id. at 4.
48. See Id. at 4; See also Office of the Special Inspector General for the Troubled Asset Relief Program, Quarterly Report to Congress 162 (Jan. 28, 2015), available at
http://www.sigtarp.gov/Quarterly%20Reports/January_28_2015_Report_to_Congress.pdf 49. US Government Accountability Office, Troubled asset relief program: Winding down
the Capital Purchase Program, GAO 15–367 4 (Mar. 6, 2015), available at:
http://www.gao.gov/assets/670/668904.pdf.
50. Emergency Economic Stabilization Act of 2008 (“EESA”), Pub L No 110–343, 122 Stat 3765 §120.
51. US Government Accountability Office, Troubled asset relief program: Treasury’s framework for deciding to extend TARP was sufficient but could be strengthened for future decisions, GAO 10–531 (Jun. 2010), available at
http://www.gao.gov/new.items/d10531.pdf .
52. Dodd–Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111–203,
124 Stat. 1376 (2010) Section 1302(1).
53. Id. at 1302(2).
54. Emergency Economic Stabilization Act of 2008 (“EESA”), Pub L No 110–343, 122 Stat 3765 §106(d).
55. Dodd–Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111–203, 124 Stat. 1376 (2010) Section 1302(1)(B) and (2).
56. Emergency Economic Stabilization Act of 2008 (“EESA”), Pub L No 110–343, 122 Stat 3765 §106(e).
57. US Dept. of Treas., Financial stability, bank investment programs, available at http://www.treasury.gov/initiatives/financial-stability/TARP-Programs/bank-
investment-programs/Pages/default.aspx: “No more taxpayer money is being invested in banks under TARP”; see also, US Dept. of Treas., Troubled asset relief program, Monthly Report to Congress, May 2015 (Jun. 10, 2015); See also Adam Hodge, US Dept. of Treas., Treasury notes “The wind down of TARP is almost complete” (Dec. 30, 2013), available at http://www.treasury.gov/connect/blog/Pages/The-Wind-Down-of- TARP-is-Almost-Complete.aspx
58. US Government Accountability Office, Troubled asset relief program 1, 4 (Jan. 2015), available at http://www.gao.gov/assets/670/667833.pdf.
59. Charles Calomiris and Urooj Khan, An assessment of TARP assistance to financial institutions, J. Econ. Perspect., 29 Spring 2015, at 58.
60. Congressional Budget Office, Report on the troubled asset relief program 1, 6 (May 2013), available at
http://www.cbo.gov/sites/default/files/cbofiles/attachments/44256_TARP.pdf.
61. Id. at 6.
62. Id.
63. US Treas. Dept., AIG WRAP-UP: Treasury sells final shares of AIG common stock, positive return on overall $182 billion AIG commitment is now $22.7 billion (Dec. 12, 2012), available at http://www.treasury.gov/connect/blog/Pages/AIG-wrapup.aspx.
64. US Government Accountability Office, Troubled asset relief program 1, 5 (Jan. 2015), available at http://www.gao.gov/assets/670/667833.pdf.
65. Id. at 5.
66. Id. at 5.
67. Id. at 5.
68. Id. at 5.
69. Id. at 4.
70. Calomiris, supra note 1419 at 59.
71. USGAO TARP report, supra note 1424 at 4.
72. Id. at 10; Office of the Management and Budget, Budget of the U.S. Government, Fiscal Year 2015,
https://www.whitehouse.gov/sites/default/files/omb/budget/fy2015/assets/budget.pdf 73. US Department of the Treasury, TARP Tracker, (accessed Oct. 9, 2015), available at:
http://www.treasury.gov/initiatives/financial-stability/reports/Pages/TARP- Tracker.aspx.
74. CNN, Mortgage bailout now profitable for taxpayers (2014), available at http://money.cnn.com/2014/02/21/news/economy/fannie-profit-bailout/.
75. US Government Accountability Office, Troubled asset relief program 1, 26 (Jan. 2015), available at http://www.gao.gov/assets/670/667833.pdf.
76. Id. at 6.
77. Id. at 7–8.
78. Id. at 8.
79. Id. at 26.
80. Id. at 33.
81. Id. at 33–34.
23 Criticisms of Bailouts Generally
We now turn to five general criticisms of government bailout efforts: (1) taxpayers can suffer losses, (2) bailouts may not work or may be prolonged, (3) bailouts create moral hazard, (4) government decisions over bailout may be political and ad hoc, and (5) bailouts may fail to boost lending activities.