It has been some time since Henry Paulson forced the Troubled Asset Relief Program (TARP) through Congress. In a power grab unprecedented in U.S. history, Paulson asked for $700 billion to purchase mortgage-related assets defined as "residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages."In his initial four-page Congressional request, he requested this authority with no strings and absolutely no liability for him or his staff if things went wrong: Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency. And even though the bill that ultimately passed Congress ended up being 96 pages, Paulson got what he wanted: an appropriation of $700 billion to spend however he chose. TARP is no longer on the front burner as the U.S. administration tries to generate jobs, deal with the oil spill, and manage two Middle East wars. But what happens with the TARP program is important because $700 billion is a lot of money. Recognize that among Federal Government departments, only Defense has an annual budget of more than $100 billion at $664 billion, with Health and Human Services at $79 billion the next highest.
A TARP OverviewTable 1 provides a summary of TARP actions to date. While the provision of funds to banks (CPP) is by far the largest disbursement activity of TARP, the auto industry now has the largest outstanding balance.
Capital Purchase Program (CPP)Paulson originally planned to use TARP to buy up mortgage-backed securities. He ended up deciding to make the primary activity of TARP the Capital Purchase Program. Under CPP, Treasury would pay money to banks. In return, banks would pay dividends on the outstanding balance at 5% for 5 years (9% in later years). In addition, the banks would issue warrants to Treasury.