The government initiated the Troubled Asset Relief Program or TARP, to stabilize the banking system, free up the credit market, and help homeowners stay in their homes. The biggest mistake the government made with that program was not having any stipulation as part of their loan agreement with these banks, which would require those institutions to modify a certain number of loans. In the case of Bank of America that received $45 billion in bailout funds, they should have been required to modify a minimum of 1,000,000 permanent loans. Additionally, Citi Group received over $40 billion in bailout funds and should have been required to do the same. Wells Fargo got $25 billion in bailout funds and should have been required to modify 750,000 permanent loans, and J.P. Morgan Chase that received over $10 billion from the TARP fund should have been required to do at least 300,000 loan modifications. If these banks failed to meet the minimum modification requirements, then their interest rates would increase from 3 percent to 12 percent. This would have been a very costly penalty for these banks. If these requirements were included in the loan agreement between the banks and the government, over 3 million homes would have been saved from foreclosure. Most of the banks that were bailed out have repaid their TARP loans; therefore, the government has no more leverage over these banks. It is evident that these banks had no interest in doing any significant amount of loan modifications even though the government kept encouraging them and begging them to do so. This approach clearly has not worked. I saw how hard my parents tried to get their loan modified and the mortgage company was unwilling to lower their monthly payment and kept giving them...
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...rogram. Most banks did not want to participate in this program because they did not like the idea of principal write-downs. This $300 billion is still available and can be used by the Obama administration to fund my program. I believe that the program that I have outlined, along with the passage of the bankruptcy legislation would definitely help to reduce the foreclosure rate in this country by more than 70 percent. The banks would definitely be in a rush to start doing voluntary loan modifications for fear of the homeowners going to bankruptcy court and having the bankruptcy judges rewrite the loans by reducing the principal to current market value and lowering the interest rate to as low as 1 percent. The banks would suffer a greater financial loss by any homeowner who got relief from a bankruptcy court as opposed to the banks modifying the mortgages themselves.
... could have such an impact after three decades of virtually innocuous existence. Pundits point to the 1995 CRA regulatory changes passed by congress and signed into law by President Bill Clinton. These changes strengthened the standards by which CRA regulators were able to judge banks on how well they were serving the credit needs of their local community. However in 2004, President George Bush repealed most of these changes, and weakened the CRA to where it had been in the early-90’s. It is simply implausible that the CRA had no negative ramifications until 30 years after it was passed. If it were a substantial cause of horrific lending standards, the financial crisis would have occurred much earlier than 2007. There must have been other, much larger contributing factors that arose in the 30 years after the CRA was enacted that led to the housing crash.
In late 2008, the world economy seemingly grinded to a halt. Wall Street, unable to reconcile the liquidity crisis and financial losses that stemmed from its bad bets on mortgage backed securities, turned to the United States government for help. What resulted was the $700 billion Troubled Asset Relief Program (“TARP”), the largest government bailout in the history of the United States. After the dust settled and Wall Street, with hundreds of billions of taxpayer dollars, managed to avert a global financial meltdown, Congress put pen to paper to ensure that the same crisis would never happen again. On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), a nearly 900-page behemoth of financial reform, was signed into law. The Dodd-Frank Act was meant to reform that the unsavory and opaque practices that led to the 2008 crisis – it does so by introducing a stricter financial regulatory regime in which Wall Street must operate.
President Bush signed the Emergency Economic Stabilization Act (EESA), more commonly called “the bailout bill,” into law in October of 2008 (Woods, 2009). Under this framework, the Secretary of the Treasury enacted the Troubled Asset Relief Program (TARP) to buy up delinquent mortgages and buy ownership stakes in banks (Muolo, 2009). To fund the $700 billion economic revival, American taxpayers would be forced to foot the bill.
Although the crisis came to head in 2008, there were people who had realized that trouble was coming for years. The largest warning sign was the amount of credit in the market place. Many of the big companies and banks had very little capital, and the lack of capital was brought on by the housing bubble. Companies were lending too much money to people who could not pay them back. And even before people started to default on their mortgages, people could see that this was a problem. During a meeting with the Senate Committee on Banking, Housing, and Urban Affairs in January 2007 the staff of the Federal Reserve admitted “that they were aware of [the] problem in the housing issue three years earlier” (Dodd). And they were not the only ones. As far back as 2001 there were people who saw the danger that sub-prime mortgages were and who were trying to have bills passed to stop the bad lending that was going on, but no one wanted to list...
What at first seemed to be an economic slump turned into a brutal crisis, and all eyes looked to the Government and Federal Reserve to help the economy. With the large amount of debt the economy faced the Federal Reserve stepped in and bailed out the banks in an attempt to smooth over the financial struggles of the economy. The banks that survived took precautionary measures, making it difficult for businesses and consumers to borrow (Love, 2011). Thus leading to businesses failing and less jobs being created. The large amount of debt had also taken its toll on the job market. Between 2007 and 2009 employment dropped by 8 million workers, causing the unemployment rate to go from 4.7 percent to 10 percent (McConnell, 2012).
The last quarter twelve percent (12%) of American homes are in default of their loan, or in foreclosure. Add that to the previous four quarters and that is eight point seven (8.7) million homes in crisis. (Further on known as HIC's) The United States “Bail Out” helped major mortgage corporations, and their chief executive officers (CEO's), but not the families that are in, or were in these HIC's across America.
This act affects future government spending and bailouts, as well as acting as an attempt to restrict the impacts of future recessions through the prevention of “the excessive risk-taking that led to the financial crisis” (Wall Street Reform: The Dodd-Frank Act, par. 2) in Wall Street. Not only does this act work as a very wide reaching reform of Wall Street, it also provides consumer protection in regards to housing loans, credit card fees and rates, and reforms to banks charging overdraft fees. This act was put into place as a result of the automotive industry bailout in 2009, and its purpose is to control government deficit in times of recession by not acting as a safety net to extremely large companies that fail. In addition, the results of this legislation are aimed to “build a safer, more stable financial system” (Wall Street Reform: The Dodd-Frank Act, par. 2). Overall, with the federal government forcing Wall Street companies to take responsibility for their own risk taking, stating that the government is no longer a potential safety net for large companies, and providing greater consumer protection in regards to housing loans, credit cards fees, and bank overdraft fees, the Obama administration appears to be attempting to prevent future recessions, as well as decreasing the deficit during the recessions that will
In a way, if the national government would have allowed the banks to fail it would serve as a lesson for banks so that they should be more careful with their investments. However, many jobs were saved. During the financial crisis, the government initiated different programs in order to alleviate these tensions of failure and economic disaster. Some of these programs included the Troubled Assets Relief Program (TARP) which United States government plunged billions of dollars into the banks. Another program was the National Economic Stabilization Act of 2008, which gave billions to rescue assets that were in trouble such as mortgaged, backed securities.
The frequency of foreclosure in our nation today is dangerously high. The strain from the recent economic downturn has put many families and individuals in a financial chokehold preventing them from being able to make their monthly mortgage payments. Consequently, many of these people feel they’ve punched a one-way ticket to foreclosure. With all these homes being foreclosed on, we face a very real crisis.
Our nation today has become spoiled with instant gratification. Loans and the borrowing system have given the idea that patience is no longer a virtue and that saving is no longer necessary. Material wealth is increased, but so is the idea of false wealth. People have become so bloated with it; therefore they take on more than they can afford. That is what has happened with our nation’s recent wave of foreclosures. Loans have led everyone to believe that they can own a home and it has omitted the practice of saving. That is where the beginning of the solution lies. Our nation’s people need to relearn the value of patience, therefore we need to learn how to start saving again because although loans may pave a way toward homeownership, it is not valued as much compared to someone who has saved for a home.
...just as welfare helped people during the great depression, this new plan could help people during this extreme recession. It is so important to keep people in their homes and not on the street and with help from our government and each individual taking responsibility for their actions, the amount of people facing foreclosure can decrease. Every American wants to know that they have a place to go home to and to call their own. For many people placing their homes up for foreclosure was something they never thought would happen and it is easy to say what one would have done to prevent this. As American we must stop blaming and looking at what has happened to the housing market and start planning on ways to fix this situation. Our country should take the resources we have now in the present, and create a plane to insure that every person is taken care of in the future.
...avoiding even deeper collapse of the global GDP and of employment. The government also created the Troubled Asset Relief Program (TARP), for the establishment and administration of the treasury fund, in an effort to control the ongoing crisis.
The Federal Reserve failed again to adequately prevent another recession from happening, in 2008 2.6 million people lost their jobs and millions of American homes were foreclosed. In 2009 when the financial crisis was declared over, there were more than 4 million people unemployed, GDP growth has been slower than ever, and the housing market has remained sluggish. In 1999, The Federal National Mortgage Association (Freddie Mae) began to make subprime mortgage loans easier for people who did not have the savings to buy new homes. In 2004 consumer debt reached $2 Trillion for the first time, high levels of consumer debt is not beneficial for an economy because it can lead to bankruptcy. Business Insider’s John Carney wrote, “Americans were told that in order to prevent another Great Depression, the government had no choice but to implement the same policies that failed to lift the country out of the actual Great Depression”. By 2007 it became clear that the housing market was going down and by 2008 the government bailed out a list of banks and companies that should have went bankrupt. Once again, the Federal Reserve Bank failed to accurately prevent another financial crisis and only served to benefit a few bankers, politicians and their friends at the expense of the rest of
All of those bad loans and bonds are now becoming subprime mortgages and at alarming rates, the big banks and even smaller banks are targeting people who can’t afford them and other members of the working class. They began to persuade them in with low interest rates but with only the intention to hike up the prices after a short grace period. The worst part about this hole dilemma isn’t totally about loans themselves either, it’s about the people who are being taken for a ride. The people paying for these loans
Without giving the banks more freedom in their investment practices, the financial crisis could have most likely been avoided. Their risky actions with the American people's’ money would have stopped before it started. However, through significant lobbying and corruption, Wall Street was able to gain more freedom in the financial markets. “Congress also passed legislation that… clarified that certain kinds of financial instruments were not regulated by the Commodity Futures Trading Commission” (Gattuso, James L.). One of the financial instruments that were clarified to not be regulated were “credit default swaps,” which were one of the main instruments used by the banks that caused the crisis.