In 2008, the great depression deepened, and congress passed the Troubled Assets Relief Program i.e., TARP. This program has, however, allocated billions of dollars approximately over $700 billion for aiding the emergency loans to the important financial and several others firms of the United States, which are considered as too big to fail. There were many great intentions and motives behind the creation of Troubled Assets Relief Program, but as a matter of fact this program totally failed as it started stealing from the tax-payers dollars. However, some of the noteworthy recipients of the TARP are Goldman Sachs, Citibank, JP Morgan Chase, abd Bank of America. Furthermore, some non-financial organizations were also involved, which include Chrysler and General Motors. However, this program has also exerted impact on the beneficiaries including the individual, corporate, individual taxpayer, and the congressional (Ghosh & Mohamed, 2010).
Furthermore, as a result of this program the desolately predictable penalty resulting from the distracted treatment of the Main Street and the Wall Street got badly affected. When the banks hoarded more power, authority and size then, the Main Street, however, got continuously hit (Barofsky, 2012). Treasury of TRAO has initially utilized 105 billion dollars out of the 700 billion dollars that were authorized by the Congress. However, dollars were used in order to bring the preferred stock in 8 banks that include Goldman Sachs, J.P. Morgan, Citigroup, State Street, Wells Fargo, Merrill Lynch, Bank of America, and Bank of New York Mellon. Additionally, the funds of TRAP were also used for buying the preferred stock in, as well as for making loans to of about 40 billion dollars to AIG, 24.8 billion dollars to Big 3 auto companies, and 45 billion dollars to Bank of America, and Citigroup.
Furthermore, 20 billion dollars additional loan was paid to the Federal Reserve TALF program. Further, the Congress has approved half of the 700 billion dollars i.e. 350 billion dollars that were meant to be used in the year 2008, and the remaining were never used.
Moreover, there are 150.6 billion dollars out of the 700 billion dollars that are uncommitted among which, 80.5 billion dollars are not used, and 70.1 billion dollars were returned by the honest people. However, it is claimed that the banks have used the money for their growth, while others needed money; they backed out and paid the money to the government. Further, the Trouble Assets Relief Program is regarded as the effectual program for the small businesses that needed help for pulling their selves in order to recover in the time of trouble. The bad has, however, overtaken the good, and the businesses and organizations that were too big to fail, however, failed irrespective of the ultimate consequence.
Trouble Asset Relief Program has made it possible for the firms to receive additional money that has paved the way to the moral hazards, which is considered as the propensity for the financial investors in the firms performing financial services for taking greater risk, as they consider that they are not fully insured against the losses (McConnell & Brue, 2013). This can be related to the taxpayers in a way that people have to pay the money to the government for the companies that are to be bailed out that are of no use for them. People have to pay because of the financial mistakes of the firms. furthermore, it is also a known fact, sometimes even in the case of bail out the executives still get the bonuses and incentives, and people have to pay for that, which is not justified in any way, because if the companies bailed out then they should leave the market as they as not following and performing right.
However, the bailouts of the government for the banks have not performed well in order to ease the credit crunch for the major street companies. The banks that have taken money of taxpayers during the financial crisis of 2008-2009, however, reduced their lending to a greater extent for the small businesses as compared to the other banks (Tozzi, 2012). The small business loans, however, declined by about 18 percent, from 659 billion dollars in the year 2008 to 543 billion dollars in the year 2011.
Further, if the government is giving out the bailouts to the banks, then there is no need for cutting the loan at the same time. In the Troubled Asset Relief Program, the banks reduced the lending to the small businesses tom about 21 percent, as compared to the 14 percent drop as a whole in the other banks i.e., banks without TARP. When the banks, get this bailout, they were asked for lending the money to the small businesses, but they rejected this offer, and focused on building their capital position strong.
Majority of people are of the view that Troubled Assets Relief Program is not a beneficial program in the real sense. This program is just a governmental mean for restoring the peace, calmness, and building of confidence and trust in the financial market, while costing the tax-payers. If the government has let the economy and the free enterprise system to heal on its own, then the business would not face bankruptcy like they have faced in the recession of 2008. The Troubled Assets Relief Program is just an example of the wasteful spending government. The government, however, does not have to be prolific; this is another main example of the Stealing from the painstaking, tax-paying Americans, which Americans cannot afford.
However, the financial market’s meltdown, as a result of Troubled Assets Relief Program has intensified the challenges that the banks are still facing. Due to the increasing competition and high yields, the banks at that time created riskier and innovative products in order to attract the customers, and retaining them afterwards, such as the collateralized debt obligations and the mortgages for the investment banks. It was expected from the financial institutions to come back towards their normal lending arrangements, for tightening the credit controls, eliminating the riskier products that paved the way to the creation of present day problems, and to increase the accountability and transparency throughout the whole financial cycle.
In a nutshell, by considering the above mentioned facts it becomes obvious that Troubled Assets Relief Program failed to perform effectively. No investments were made because of this program rather the government was pushed the government for advancing unnecessary loans that have exerted burden on the economy, and still the loans that were advanced are not recovered. Billions of dollars were wasted in this program without any fruitful results; the dollars were used just in the favor of a few banks and other financial institutions without considering others such as small and medium enterprises and small businesses, which led to creation of havoc in the country. This program has paved the way to the corruption in the governmental offices.
However, this oversight demands adequate transparency for gaining the absolute confidence and trust in the taxpayer dollar’s stewardship that are invested in the Troubled Assets Relief Program. The TARP program is compelling the government towards the traditional non-government investments, and this novel mandate, however, demands new form of the financial management, which amalgamates the proven and established practices in the portfolio management and banking assets with the financial management at the federal level. Another major impact is the enhanced dependence on the HUD Federal Housing Administration mortgage insurance programs, these programs are increasing in volume because of the condensation of the sub-prime market, which is putting a pressure on the operations and systems that assist these programs.
Furthermore, the agencies that are not a part of the Troubled Assets Relief Program will face the lean budgets that need for revaluation in order to fit best for meeting the goals and objectives of program. The ways for saving money should be identified by reducing idleness and significantly improving the management practices. Since, the Troubled Assets Relief Program is investing the taxpayer dollars in the financial assets, so in this case a strong framework that helps in the management of relationships, structures, reporting requirements and processes of the complex and huge initiatives is necessary for success.
There is no need and requirement for stopping the innovative practices while retrenching, the requirement is that bank should modify their legacy procedures, systems, and operations for responding to the increasing demands of the customers, and for ensuring better services and more flexibility for the customers. They have to make preparations for novel modified regulatory and monitory regime. Presently, the financial institutions, however, answer to several regulators that are based on their officially authorized organizations that licensed them. The Congress in this regard should make an attempt for modifying the regulatory framework introduced in 1930 and 1940; it should be modernized in order to meet the demands of present day customer and businesses.
References
Barofsky, Neil. (2012). Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street. Simon and Schuster, Inc. New York
McConnell, Campbell R., & Brue, Stanley L. (2013). Essentials of Economics. McGraw-Hill & Irwin, New York
Tozzi, John. (2012). TARP Verdict: Bailouts Failed to Help Small Business. Bloomberg Businessweek. Retrieved from:
http://www.businessweek.com/articles/2012-11-09/tarp-verdict-a-failure-for-small-business
Ghosh, Saptarshi., & Mohamed, Sajid. (2010). The Troubled Asset Relief Program (TARP) and its limitations: an analysis. International Journal of Law and Management, 52(2), 124 - 143
