TARP: Four Years Later

Four years ago, Congress voted and approved the Troubled Asset Relief Program, also known as TARP. The $700 billion “rescue plan” was passed on a second voting attempt in efforts to save Wall Street and the financial system.

The program was voted on once before by the House of Representatives on September 29, 2008, but failed by a vote of 205 to 228. The Dow Jones Industrial Average plunged nearly 800 points on that day, and a near identical TARP package was passed on October 3, 2008 by a vote of 263 to 171. While the blue-chip average still fell off a cliff and eventually reached rock bottom at 6,705 on March 3, 2009, the index has reversed its losses to recapture the 13,000 level.

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However, many of the largest financial entities to receive bailout funds have yet to recover their stock losses, as investors still remain skeptical of the battered and artificially propped up financial system. The following financial names are the biggest recipients of taxpayer handouts, with their respective dollar amounts.

American International Group (NYSE:AIG) $67.8 billion
Bank of America (NYSE:BAC) $45 billion
Citigroup (NYSE:C) $45 billion
JPMorgan Chase (NYSE:JPM) $25 billion
Wells Fargo (NYSE:WFC) $25 billion

As the chart above shows, the banking industry has failed to take part in the so-called recovery. The S&P 500 has gained 30 percent over the past four years thanks to central banks around the world devaluing currencies, but shares in Bank of America and Citigroup are still down around 80 percent. AIG and JPMorgan Chase are also in the red for the time period. Wells Fargo has managed to claw-back its losses, but it is still flat over the past four years.

Fannie Mae and Freddie Mac are excluded from the chart as they were both delisted from the New York Stock Exchange in 2010, but the two failed entities are the biggest drains on taxpayers with bailout amounts of $116.1 billion and $71.3 billion, respectively.

Advocates of TARP point to the need of “saving” the financial system in order to avoid even more pain, but others rightly claim that sick patients must take their medicine eventually, no matter how bad it might taste. Furthermore, the unintended consequences of the government’s actions during the depths of the credit crisis have yet to be seen. If financial equity prices are any indication, it appears that investors are still waiting for the medicine to be swallowed by Mr. Market. Another indication has been the price of gold hitting record nominal highs over the past several years. The precious metal is seen as a hedge against uncertainty and a “put against the idiocy of the political cycle.”

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