Plans for Remaining TARP Funds

It is understood that the lawmakers are now planning to put in place a set of rules to govern the use of the remaining half ($350 billion) of the funds available for the Troubled Asset Relief Program (TARP). The proposed legislation may come to the House as early as next week. The rules are expected to include, among others:

1) Requirements on the part of the banks to assist homeowners facing foreclosures

2) Specific mandates on executive compensation

3) Tougher disclosure requirements on the use of the money

Lawmakers and taxpayers are so far less than pleased about the way the first $350 billion (or maybe a little more) was spent by the Treasury. No details about the proposed use of the money that the banks receive from the Treasury were sought, no conditions were put and there were no consequences for not lending. As a result the banks have used the money for buying treasuries, acquisitions, paying dividends and bonuses or other such purposes and there are no details available on how the money was spent.

While we do not deny that the program has improved the health of the financial system, and if the sole purpose of the program was to prevent any further failures of the financial institutions, then it has achieved that purpose till now. But those who originally thought that the money would be used by the banks to rectify the lending issues and to reduce foreclosures were certainly disappointed.

Further, not only the taxpayers deserve to know how the money is being used, it would also be in the interest of the long-term viability of the banking system that the banks lend this money wisely and earn enough interest on it (as they are paying interest on it to the Government) rather than hoard it or use it to pay bonuses to the executives, who were to at least a certain extent responsible for the messy situation at their institutions.   


 

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