Troubled Assets Relief Program
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Troubled Assets Relief Program

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Troubled Assets Relief Program Troubled Assets Relief Program Presentation Transcript

  • TROUBLED ASSETS RELIEF PROGRAM
  • WHAT IS TARP?
    • Emergency stabilization act , 3rd Oct 2008
    • To bail out the economy from the financial crisis
    • Gave the US treasury USD 700 Billion purchasing power
    • USD 250+USD100 Bn immediately released to treasury
    • Next USD 350 Bn - Congress approval needed
    • To buy Mortgage Backed Securities
    • To un seize the money market
    • To create liquidity
  • SUBPRIME CRISIS
  • OBJECTIVE & OUTCOME
    • Purchase assets and equity from financial institutions to strengthen its financial sector
    • To address the instability caused by subprime mortgage crisis.
    • Allows the Treasury to purchase illiquid assets from banks and other financial institutions
    • To purchase CDS, which were sold in a booming market until 2007
    • Finance main street- Making Home affordable Program- Help families stay in their homes
    =
    TARP was eventually getting Wall Street back on its feet; it is not meeting its goal of getting Main Street back on its feet
    • Result: 'Too-big-to-fail' banks grow even bigger
  • TARP RECIPIENTS
  • TARP FUNDS
    TARP funds were issued through:
    • Purchase of preferred stock in banks  which is redeemable
    • Purchase of equity capital
    • Issue of guarantees
  • TARP AND GOVERNMENT
    • TARP became an act under president G.W. Bush
    • President BarackObama (Jan ‘09) said that he intended to "fundamentally change some of the practices" in the bailout program
    • He said, "Many of us have been disappointed with the absence of clarity, the failure to track how the money's been spent.“
    In Feb 2010 he planned Congress to transfer TARP funds that have been paid back from the Wall Street banks to a new program "to provide capital for community banks on Main Street which deal more closely with the small businesses“
  • TARP- US TREASURY SECTRTARIES - GOLDMAN SACHS
    • HENRY HANK PAULSON Served as the 74th United States Treasury Secretary,
    previously the Chairman and Chief Executive Officer of Goldman Sachs
    • Influenced the decision to create a credit facility of US$85 billion to AIG to avoid filing bankruptcy
    • Paulson's plan potentially had conflicts of interest
    • The Goldman Sachs benefit from AIG bailout was recently estimated as USD 12.9 billion and Goldman Sachs was the largest recipient of the public funds from AIG
  • TARP- US TREASURY SECTRTARIES - GOLDMAN SACHS
    TARP- US TREASURY SECTRTARIES - GOLDMAN SACHS
    TARP- US TREASURY SECTRTARIES - GOLDMAN SACHS
    TIMOTHY GEITHNER
    • 75th and current US Treasury Secretary
    • Directed the Federal Government's spending on the financial crisis of ’07 – ’10, allocation of $350 billion TARP funds
    • In Mar’08,supporting role to Henry Paulson, in decision to bail out AIG
    • 2 days after deciding not to rescue Lehman Brothers from bankruptcy.  
    • contributed to worsening the global financial crisis
  • TROUBLED ASSETS RELIEF PROGRAM
  • TARP & AIG & GOLDMAN SACHS
    • AIG : US’s largest insurance company and the world’s leading issuer of credit default swaps
    • Collapsed in September 2008-high leverage, high exposure to CDS
    • Received-USD 180 bn under TARP in installments
    • Goldman got $4.8 billion from AIG's securities lending unit
    • And AIG posted $2.5 billion in collateral to Goldman , which came directly from TARP according to AIG's own list of what it did with its bailout money
  • TARP & AIG & GOLDMAN SACHS
    • It got twice as much as any other American bank, the Fed's "special purpose vehicle" that it created to unwind AIG's credit default swaps
    • AIG bailout turned out to be a scam.
    • AIG executives - ($165 million) in bonuses
    • Billions of taxpayer dollars paid to the counter- parties of AIG’s financial deals
    • It still owes a combined total of $62 billion to the Fed and the Treasury
  • WHAT REALLY HAPPENED …
  • IS TARP ONLY A FAILURE? MAY BE NOT!
    • Failure to the purpose it was set for
    • Success: managed to lift the face of the economy
    • TARP repayments had reached a total of $240 billion,
    • Net outstanding $110 billion
    • Taxpayers have also received a further return on TARP investments of $23 billion through dividends, interest, and other income
    • Overall combined TARP revenues totaled $217 billion through the end of May 2010
    • The US Fed has made huge profits through purchase of equity capital
    • 80% of AIG is owned by the US Fed.
  • BANKS PAYING UP
    • Tarp was suppose to strengthen the balance sheet of the banks for long run stability
    • Banks paid up to get free from restrictions by fed govt on tarp recipients
    To free themselves of salary caps
    • Paid by offering loans which beats the objective
  • TARP REPAYMENS
  • TARP REPAYMENS BY BANKS
  • IS TARP ONLY A FAILURE? MAY BE NOT!
    CRITICISM
    • Privatization of profits and socialisation of losses
  • PRESENTED BY:
    KARAN CHAWLA
    HARIT PAHWA
    KETAN SARAF
    RASHMI BHATIA
    TARU JAIN
    SUKRITI KUMAR