Short Term Loans Set on Growth After 2008 Bailout
The Bank Bailout
Mortgage loans, home equity loans, short term loans and automobile loans are all on the rise now that the economy is on the upswing. The Bank Bailout of 2008 was created to help lenders regain their footing as solid business entities. In years leading up to the recession, lenders were lending so freely that they were not careful to qualify a borrower. A huge number of those borrowers defaulted on their loans and sent lenders into a downward spiral of disaster. The government created the bailout to help financial institutions regain their footing. Now that the bailout is over, the economic analysts are projecting that money will be flowing back into the U.S. Treasury. The total put out was $700 billion and the estimated return will be a huge sum, though less than the full amount. For example, Bank of America continued to repay their bailout portion of $45 billion last week.
TARP and What it Means to Taxpayers
TARP, or the Troubled Asset Relief Program, was set up by the Treasury to protect the Federal Reserve. The Fed realized late in the game that the banking system was at near crash-level and quickly tried to come up with solutions. It doubled its lending quickly and put more than $2 trillion into the economy. To mitigate damage, the Federal Reserve offered the TARP program. Though smaller lenders were slow to get on board, it was the larger lenders who set the stage for receiving help. Now that the economy is starting to recover, they are slowly paying the money back.
The price for taxpayers regarding the TARP program has yet to be calculated. In August, the Treasury predicted that of the total $700-billion bailout, approximately $341 billion would not be recouped. Fortunately, new studies are showing that an additional $200 billion will be coming back to the U.S. Treasury. The reason is because banks did better than anticipated and won’t need additional funding. Those funds are being diverted directly back.
What to Do With the Money
Both Congress and the White House have their own ideas on what needs to be done with the funds. Some of the ideas floating around the government are:
- Use the money to build up financial institutions more so they continue to extend home equity, mortgage and short term loans to the public.
- Spend the additional money on job creation.
- Fund new transportation and infrastructure projects around the country.
- Create additional tax credits for small business that start hiring.
- Fuel funds into local governments so they can stop layoffs of public workers.
- The President wants to use the recouped money to go to reducing the unemployment rate and towards the record $1.4 trillion budgetary deficit. Republicans vetoed the plan, however, citing that any TARP-related funds should be used for financial initiatives only.
A Hopeful Financial Future
Ben Bernanke, Federal Reserve Chairman, said, “If you look at the money that was put into financial institutions specifically, I think overall we are going to end up pretty close to break-even, maybe somewhat in the red, but not too much.” Admittedly, his estimates do not include the $20 billion spent on the automobile giants Chrysler and GM. Most believe that the money channeled to those two companies is lost for good.
The True Cost to Taxpayers
The true cost of TARP is unknown. Most analysts believe that is will bring a loss to taxpayers, but no one can predict how much. Some are speculating that once the money is brought back into the U.S. Treasury, it will be used to fund government programs and close up the deficit. Others are hoping that at least part of it is used to increase the number of mortgage loans, home equity and short term loans that consumers are able to receive.