TARP - A history lesson

We all tend to have short memories and we like to remember what is convenient to our own political position. So let's take a look back and review what actually happened and why TARP was originally created.

The initial purpose of the TARP program was to purchase "toxic assets" from banks and get them off of their balance sheets so they could free up funds to lend. This was included in the Emergency Economic Stabilization Act of 2008 that was passed by Congress on Oct. 3, 2008. Just 11 days later, on October 14, 2008 Secretary Paulson announced a change to the TARP program. Instead of buying "toxic assets" the Treasury would buy preferred stock and warrants from the big banks.

If you remember the press reports, the top 10 banks were required to participate. The government made them participate. The government then announced they would allow other banks to participate and they indicated that they would award funds to "healthy" institutions. Banks were encouraged to participate and those who did participate were perceived as stronger than those that did not.

As part of the program, banks were required to pay a quarterly dividend of $0.05 per share. These dividend payments as well as the profit from the warrants was to be used to reduce the deficit. This entire program should not add to the national debt. Find another government program that does this.

If you recall during the height of the financial crisis, Secretary Paulson was quick to allow non-banks to become banks. Morgan Stanley, American Express and GMAC among others were quickly granted Bank Charters so they could participate in the TARP program. Now we look at Morgan Stanley and Goldman and lump them in with all the other banks in the country.

So before we start trashing all banks let's remember from whence we came.

Also, we need to get the facts on what the financial implications are for the TARP program. I will provide a bit more clarity in my next update. But for now, let's stop the bank bashing and start working together to get this country moving in the right direction.