December 22, 2014
In 2008 Lehman Brothers' had gone bankrupt, Merrill Lynch had to be bought out by Bank of America, and the nation's financial system was on the verge of collapse. In an attempt to strengthen the financial and auto sectors, President George W. Bush signed into law the Troubled Asset Relief Program, known as TARP. The program gave our Treasury Department the purchasing power to buy illiquid mortgage-backed securities to restore liquidity to markets.
On Friday, the U.S. Government sold its remaining shares of Ally Financial, the former financing arm of General Motors, closing the final major pieces of a $426 billion rescue package. Overall, TARP netted a profit of $15.3 billion which was unexpected at the time of the bailout's inception.
Many have criticized the bailout program and in 2010 a new Dodd-Frank law was passed forbidding future taxpayer bailouts. However, the program allowed Citigroup, Bank of America, General Motors, Chrysler and American International Group to overcome crippling losses. In the end, did the bailout work? According to the Treasury Secretary, Jacob Lew, it did. On Friday, Lew said, "The Auto Industry Financing Program helped save the auto industry, more than one million jobs, and prevent a second Great Depression."
Everyone has varying opinions on the success of the bailout, but one thing we can all agree on is that Friday began the process of closing the book on an ugly economic time for our country.
Ethan Wade, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).