View source for Emergency Economic Stabilization Act of 2008

{{short description|US law creating the Troubled Asset Relief Program (TARP)}}
{{About|one division of an enacted statute|the entire statute|Public Law 110-343|the enacted rescue program|Troubled Asset Relief Program}}
{{Use American English|date=June 2025}}
{{Use mdy dates|date=July 2024}}

The '''Emergency Economic Stabilization Act of 2008''', also known as the "'''bank bailout of 2008'''" or the "'''Wall Street bailout'''", was a United States federal [[law]] enacted during the [[Great Recession]], which created [[federal program]]s to "bail out" failing financial institutions and [[bank]]s. The [[Bill (law)|bill]] was proposed by [[United States Secretary of the Treasury|Treasury Secretary]] [[Henry Paulson]], passed by the [[110th United States Congress]], and was signed into law by President [[George W. Bush]]. It became law as part of [[Public Law 110-343]] on October 3, 2008. It created the $700 billion [[Troubled Asset Relief Program]] (TARP) whose funds would purchase [[toxic asset]]s from failing banks. The funds were mostly directed to inject capital into banks and other financial institutions as the [[United States Department of the Treasury|Treasury]] continued to review the effectiveness of targeted asset-purchases.<ref>{{Cite news|url= https://www.theguardian.com/business/2008/nov/13/harry-paulson-banking-rescue-mortgage|title= Paulson abandons plans to buy up America's toxic mortgage assets|author= Andrew Clark|work= [[The Guardian]]|date= November 13, 2008|access-date=November 15, 2008 | location=London}}</ref><ref>{{Cite news|url= https://www.reuters.com/article/ousiv/idUSTRE4AB7P820081112|title= U.S. backs away from plan to buy bad assets|author= David Lawder|work=[[Reuters]]|date= November 12, 2008|access-date=November 15, 2008}}</ref>

The [[2008 financial crisis]] developed partly due to the [[subprime mortgage crisis]], causing the failure or near-failure of major financial institutions like [[Lehman Brothers]] and [[American International Group]]. Seeking to prevent the collapse of the [[financial system]], Secretary of the Treasury Paulson called for the U.S. government to purchase several hundred billion dollars in [[distressed assets]] from financial institutions. His proposal was initially rejected by Congress, but the [[bankruptcy of Lehman Brothers]] and lobbying by President Bush ultimately convinced Congress to enact the proposal as part of [[Public Law 110-343]].

Early estimates for the bailout's risk cost were as much as $700 billion; however, TARP recovered $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit (an annualized rate of return of 0.6%), which may have been a loss when adjusted for inflation.<ref name="wsj1214">{{cite news | author = Ryan Tracy, Julie Steinberg and Telis Demos | title = Bank Bailouts Approach a Final Reckoning | date = December 19, 2014 | url = https://www.wsj.com/articles/ally-financial-exits-tarp-as-treasury-sells-remaining-stake-1419000430 | access-date = December 28, 2014 | work=The Wall Street Journal}}</ref>

==History==
[[File:Ustreasur.JPG|thumb|[[United States Department of the Treasury]]]]
After the freeing up of world [[capital market]]s in the 1970s and the repeal of the [[Glass–Steagall Act]] in 1999, banking practices (mostly [[Alan Greenspan|Greenspan]]-inspired "self-regulation") and [[subprime mortgage crisis|monetized subprime mortgages]] sold as low risk investments reached a critical stage during September 2008, characterized by severely contracted [[Market liquidity|liquidity]] in the global credit markets<ref>[https://web.archive.org/web/20081003212714/http://biz.yahoo.com/ap/080930/credit_markets.html "Banks in Miser Mode"]</ref> and insolvency threats to investment banks and other institutions. In response, the U.S. government announced a series of comprehensive steps to address the problems, following a series of "one-off" or "case-by-case" decisions to intervene or not, such as the $85 billion liquidity facility for [[American International Group]] on September 16, the [[federal takeover of Fannie Mae and Freddie Mac]], and the bankruptcy of [[Lehman Brothers]].

The legislation had its origin in early 2008 when [[Secretary of the Treasury]] [[Henry Paulson]] directed two of his aides, [[Neel Kashkari]] and [[Phillip Swagel]], to write a plan to recapitalize the U.S. financial system in case of total collapse. The plan, which was also presented to [[Federal Reserve Chairman]] [[Ben Bernanke]], called for the U.S. government to purchase about $500 billion in distressed assets from financial institutions.<ref>[[Andrew Ross Sorkin]]. ''[[Too Big to Fail (book)|Too Big to Fail]]''. Penguin Books, 2009, 2010. pp. 83–93.</ref>

The original proposal was submitted to the [[United States House of Representatives]], with the purpose of purchasing bad assets, reducing uncertainty regarding the worth of the remaining assets, and restoring confidence in the [[credit market]]s. The bill was then expanded and put forth as an amendment to {{USBill|110|H.R.|3997}}.<ref name = 'HCFS-Amendment to HR3997-2008-09-29'/> The amendment was rejected via a vote of the House of Representatives on September 29, 2008, voting 205–228.<ref>{{cite news | title = Final vote results for roll call 674 | publisher = [[Clerk of the United States House of Representatives]] | url = http://clerk.house.gov/evs/2008/roll674.xml | date = September 29, 2008 | access-date = September 29, 2008}}</ref>

Supporters of the plan argued that the [[Bailout|market intervention]] called for by the plan was vital to prevent further erosion of confidence in the U.S. [[credit market]]s and that failure to act could lead to an [[economic depression]]. Opponents objected to the plan's cost and rapidity, pointing to polls that showed little support among the public for "bailing out" Wall Street investment banks,<ref name="LAT_20080904">{{cite news | title=Americans reluctant to fund bailout|author=McManus, Doyle|work=[[Los Angeles Times]]|date=September 24, 2008|access-date=September 28, 2008|url=https://www.latimes.com/archives/la-xpm-2008-sep-24-na-econpoll24-story.html}}</ref> claimed that better alternatives were not considered,<ref>{{cite news|url=https://www.theguardian.com/commentisfree/2008/sep/29/wallstreet.useconomy |title= History shows the bail-out won't solve the banking crisis |work=The Guardian |access-date=October 2, 2008 | location=London | date=September 29, 2008 | first=Nouriel | last=Roubini}}</ref> and claimed that the Senate forced passage of the unpopular version through the opposing house by "[[pork barrel|sweetening]]" the bailout package.<ref>{{cite news|url=http://www.bizjournals.com/sanjose/stories/2008/09/29/daily57.html |title=Senate adds renewable energy credits to bailout|work=[[San Jose Business Journal]]|publisher=American City Business Journals |date= October 1, 2008|access-date= October 2, 2008 |first=Mike |last=Soraghan}}</ref>

On October 1, 2008, the [[United States Senate|Senate]] debated and voted on an amendment to [[Public Law 110-343|H.R. 1424]], which substituted a newly revised version of the Emergency Economic Stabilization Act of 2008 for the language of H.R. 1424.<ref name="LOC-THOMAS-HR1424"/><ref name='Senate CBHUA-Amend HR1424-2008-10-01'>
[https://web.archive.org/web/20081001214431/http://banking.senate.gov/public/_files/latestversionAYO08C32_xml.pdf Amendment to HR 1424] (the amendment being the text of the Emergency Economic Stabilization Act of 2008 along with the '''Energy Improvement and Extension Act of 2008''', and '''Tax Extenders and Alternative Minimum Tax Relief Act of 2008'''.) Senate Committee on Banking, Housing and Urban Affairs (October 1, 2008) ( Retrieved October 1, 2008) See also the Senate Committee on Banking page: [http://banking.senate.gov/public/index.cfm?Fuseaction=Articles.Detail&Article_id=76b1aea4-39b8-404f-b3cd-f8b6c46e3b14&Month=10&Year=2008 Emergency Economic Stabilization Act of 2008]</ref> The Senate accepted the amendment and passed the entire amended bill, voting 74–25.<ref>Final Roll Call for Senate vote: [https://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=110&session=2&vote=00213 On Passage of the Bill (H. R. 1424 As Amended)].</ref> Additional unrelated provisions added an estimated $150 billion to the cost of the package and increased the length of the bill to 451 pages.<ref name= 'NYT-Hulse-Vote count-2008-10-01'>{{cite news | first= Carl | last= Hulse |author2=David M. Herszenhorn | title= Adding Sweeteners, Senate Passes Bailout Plan | date= October 1, 2008 | url = https://www.nytimes.com/2008/10/02/business/02bailout.html | work = [[The New York Times]] | access-date = October 1, 2008 }}</ref><ref>{{cite news|url=http://www.nbcnews.com/id/26953481|archive-url=https://web.archive.org/web/20130315131036/http://www.nbcnews.com/id/26953481/|url-status=dead|archive-date=March 15, 2013|title=Senate passes its own bank bailout package|work=[[NBC News]]|date=October 1, 2008}}</ref> (''See'' [[Public Law 110-343]] for details on the added provisions.) The amended version of H.R. 1424 was sent to the House for consideration, and on October 3, the House voted 263–171 to enact the bill into law.<ref name="LOC-THOMAS-HR1424"/><ref>{{cite news | title=Final Vote Results for Roll Call 681 | publisher=Clerk of the United States House of Representatives | date=October 3, 2008 | access-date=October 21, 2008 | url=http://clerk.house.gov/evs/2008/roll681.xml}}</ref><ref name="NYT-Herszenhorn-2008-10-03">{{cite news |url= https://www.nytimes.com/2008/10/04/business/economy/04bailout.html | first= David M. | last= Herszenhorn | title= House Approves Bailout on Second Try| date= October 3, 2008| work = The New York Times | access-date = October 3, 2008 }}</ref> President [[George W. Bush]] signed the bill into law within hours of its congressional enactment, creating the $700 billion [[Troubled Asset Relief Program]] (TARP) to purchase failing bank assets.<ref name=NPR20081003>Temple-Raston, Dina (October 3, 2008). [http://www-cdn.npr.org/templates/story/story.php?storyId=95336601 "Bush signs $700 billion bailout bill"] {{Webarchive|url=https://web.archive.org/web/20091202085955/http://www-cdn.npr.org/templates/story/story.php?storyId=95336601 |date=December 2, 2009 }}. NPR.</ref>

On Monday, October 6, the [[Dow Jones Industrial Average]] dropped more than 700 points and fell below 10,000 for the first time in four years.<ref>Bel Bruno, Joe & Paradis, Tim (October 6, 2008). [https://web.archive.org/web/20081010070903/http://biz.yahoo.com/ap/081006/wall_street.html "Dow finishes below 10,000 for first time since '04"]. Retrieved October 7, 2008.</ref> The same day, CNN reported these worldwide stock market events: Britain's [[FTSE 100 Index]] was down 7.9%; Germany's [[DAX]] down 7.1%; France's [[CAC 40]] dropping 9%; in Russia, trading in shares was suspended after the [[Russian Trading System|RTS]] stock index fell more than 20%; [[Iceland]] halted trading in six bank stocks while the government drafted a [[crisis plan]].<ref>[http://edition.cnn.com/2008/BUSINESS/10/06/stock.markets/index.html "Asia, Pacific markets tumble in opening"]. [[CNN]]. October 6, 2008. Retrieved October 7, 2008.</ref>

On October 8, the British announced their [[2008 United Kingdom bank rescue package|bank rescue package]] consisting of funding, debt guarantees and infusing capital into banks via preferred stock. This model was closely followed by the rest of Europe, as well as the U.S government, who on October 14 announced a $250bn (£143bn) [[Capital Purchase Program]] to buy stakes in a wide variety of banks in an effort to restore confidence in the sector. The money came from the $700bn Troubled Asset Relief Program.<ref name=Langley2015>{{cite book|last1=Langley|first1=Paul|title=Liquidity Lost: The Governance of the Global Financial Crisis|date=2015|publisher=Oxford University Press|isbn=978-0199683789|pages=82–86|url=https://books.google.com/books?id=FhGaBQAAQBAJ&pg=PA82}}</ref><ref>{{cite news|title=Gordon Does Good|url=https://www.nytimes.com/2008/10/13/opinion/13krugman.html?_r=0|access-date=February 5, 2016|work=The New York Times|date=October 12, 2008}}</ref>

Over the next six months, TARP was dwarfed by other guarantees and lending limits; analysis by Bloomberg found the [[Federal Reserve]] had, by March 2009, committed $7.77 trillion (~${{Format price|{{Inflation|index=US-GDP|value=7770000000000|start_year=2009}}}} in {{Inflation/year|US-GDP}}) to rescuing the financial system, more than half the value of everything produced in the U.S. that year.<ref>{{cite web |url= https://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html |title= Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress |first1= Bob |last1= Ivry |first2= Bradley |last2= Keoun |first3= Phil |last3= Kuntz |date= November 28, 2011 |work= [[Bloomberg Markets]] |publisher= [[Bloomberg L.P.]] |access-date= May 14, 2012 }}</ref>

== Paulson proposal ==
[[United States Secretary of the Treasury|U.S. Treasury Secretary]] [[Henry Paulson]] proposed a plan under which the U.S. Treasury would acquire up to $700 billion worth of mortgage-backed securities.<ref name="plan0920nyt">
{{cite news|url=https://www.nytimes.com/2008/09/21/business/21draftcnd.html |title=Text of Draft Proposal for Bailout Plan|date=September 20, 2008|work=The New York Times}}</ref> The plan was immediately backed by President [[George W. Bush]] and negotiations began with leaders in the U.S. Congress to draft appropriate legislation. On Thursday, September 18, 2008, Paulson and [[Chair of the Federal Reserve]] [[Ben Bernanke]] had a dramatic meeting with Congressional leaders, to whom Bernanke reportedly said: "If we don't do this, we may not have an economy on Monday".<ref>{{cite news | url=https://www.nytimes.com/2008/10/02/business/02crisis.html | title=As Crisis Spiraled, Alarm Led to Action| first=Joe | last=Nocera | author-link=Joe Nocera | work=[[The New York Times]] | date=October 1, 2008 | url-access=subscription}}</ref>

[[File:President George W. Bush bipartisan economic meeting Congress, McCain, Obama.jpg|thumb|right|President Bush meets with Congressional members, including presidential candidates [[John McCain]] and [[Barack Obama]], at the White House to discuss the bailout, September 25, 2008.<ref>[https://georgewbush-whitehouse.archives.gov/news/releases/2008/09/images/20080925-9_v092508db-0111-515h.html "President Bush Meets with Bicameral and Bipartisan Members of Congress to Discuss Economy"], [[Whitehouse.gov]], September 25, 2008.</ref>]]

Consultations among Treasury Secretary Henry Paulson, Chairman of the Federal Reserve Ben Bernanke, [[U.S. Securities and Exchange Commission]] chairman [[Christopher Cox]], congressional leaders, and President Bush, moved forward efforts to draft a proposal for a comprehensive solution to the problems created by [[Market liquidity#Overview|illiquid assets]]. News of the coming plan resulted in some stock, bond, and currency markets stability on September 19, 2008.<ref>Bowley, Graham (September 19, 2008), [https://www.nytimes.com/2008/09/20/business/economy/20cndleadall.html "Stocks Surge as U.S. Acts to Shore Up Money Funds and Limits Short Selling"], ''The New York Times''</ref><ref>Herszenhorn, David M. (September 19, 2008), [https://www.nytimes.com/2008/09/20/washington/19cnd-cong.html "Congressional Leaders Were Stunned by Warnings"], ''The New York Times''.</ref>

The proposal called for the federal government to buy up to US$700 billion of illiquid mortgage-backed securities with the intent to increase the liquidity of the [[secondary mortgage market]]s and reduce potential losses encountered by financial institutions owning the securities. The draft proposal was received favorably by investors in the stock market, but caused the U.S. dollar to fall against [[gold]], the [[Euro]], and [[petroleum]]. The plan was not immediately approved by Congress; debate and amendments were seen as likely before the plan was to receive legislative enactment.<ref name="Andrews">Andrews, Edmund L. (September 19, 2008), [https://www.nytimes.com/2008/09/20/business/20fed.html "Bush Officials Urge Swift Action on Rescue Powers"], ''The New York Times''.</ref><ref name="associated1">[https://www.nytimes.com/aponline/business/AP-Financial-Meltdown.html "Rescue Plan Seeks $700 Billion to Buy Bad Mortgages"], ''The New York Times'', [[Associated Press]], September 20, 2008.</ref><ref>Herszenhorn, David M. (September 20, 2008), [https://www.nytimes.com/2008/09/21/business/21cong.html "Administration Is Seeking $700 Billion for Wall Street"], ''The New York Times''.</ref>

Throughout the week of September 20, 2008, there was contentious wrangling among members of Congress over the terms and scope of the bailout,<ref name="Nomi Prins">Prins, Nomi (September 24, 2008), [http://therealnews.com/t/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=2393 "Bailout plan not embraced"], [[The Real News]]</ref> amplified by continued failures of institutions like [[Washington Mutual]], and the upcoming November 4 national election.

*On September 21, Paulson announced that the original proposal, which would have excluded foreign banks, had been revised to include foreign financial institutions with a presence in the United States. The U.S. administration pressured other countries to set up similar bailout plans.<ref>{{Cite news | last1 = Schwartz | first1 = Nelson D. | first2 = Carter |last2=Dougherty | title = Foreign Banks Hope Bailout Will Be Global | work = The New York Times | date = September 22, 2008 | url = https://www.nytimes.com/2008/09/22/business/22global.html }}</ref>
* On September 23, the plan was presented by Paulson and Bernanke to the [[United States Senate Committee on Banking, Housing, and Urban Affairs|Senate Banking Committee]], who rejected it as unacceptable.<ref name="hardsell">{{cite news|url=https://www.nytimes.com/2008/09/24/business/economy/24fannie.html|title=Buyout Plan for Wall Street Is a Hard Sell on Capitol Hill|first1=Mark |last1=Landler|first2=Steven Lee|last2=Myers|date=September 23, 2008|work=The New York Times}}</ref>
*On September 24, President Bush addressed the nation on prime time television, describing how serious the [[2008 financial crisis]] could become if action was not taken promptly by Congress.<ref>[https://georgewbush-whitehouse.archives.gov/news/releases/2008/09/print/20080924-10.html "President's Address to the Nation"], September 24, 2008.</ref>
*Also on September 24, 2008, [[Republican Party (United States)|Republican Party]] nominee for President, [[John McCain]], and [[Democratic Party (United States)|Democratic Party]] nominee for President, [[Barack Obama]], issued a joint statement describing their shared view that "The effort to protect the American economy must not fail."<ref>[http://www.foxbusiness.com/story/markets/mccain-suspends-campaign-issue-statement-obama/ McCain, Obama Issue Joint Statement on Crisis] Fox News, September 24, 2008, Retrieved on October 8, 2008.</ref>

The plan was introduced on September 20, by Paulson. Named the Troubled Asset Relief Program,<ref name="plan0920nyt" /> but also known as the Paulson Proposal or Paulson Plan, it should not be confused with Paulson's earlier 212-page plan, the ''Blueprint for a Modernized Financial Regulatory Reform'',<ref>[http://www.treasury.gov/press-center/press-releases/Documents/Blueprint.pdf "Blueprint for a Modernized Financial Regulatory Structure"], [[United States Department of the Treasury]], March 31, 2008.</ref> that was released on March 31, 2008.

The proposal was only three pages long, intentionally short on details to facilitate quick passage by Congress.<ref>{{cite magazine|url=http://www.time.com/time/politics/article/0,8599,1843642,00.html|archive-url=https://web.archive.org/web/20080924065004/http://www.time.com/time/politics/article/0,8599,1843642,00.html|url-status=dead|archive-date=September 24, 2008|title=Congress and the Bailout Plan: Business As Usual|magazine=[[Time (magazine)|Time]] |date=September 23, 2008|first=Massimo|last=Calabresi}}</ref>

===Mortgage asset purchases===
{{Update|section|date=January 2025|reason=Section uses mostly sources from 2008 that speculate as to the effects of the plan. Newer sources that can speak to the actual effects would be beneficial.}}
A key part of the proposal is the federal government's plan to buy up to $700 billion of illiquid [[Mortgage-backed security|mortgage-backed securities]] (MBS) with the intent to increase the liquidity of the [[secondary mortgage market]]s and reduce potential losses encountered by financial institutions owning the securities. The draft proposal of the plan was received favorably by investors in the stock market.<ref name="Andrews" /><ref name="associated1" />

This plan can be described as a risky investment, as opposed to an expense. The MBS within the scope of the purchase program have rights to the cash flows from the underlying mortgages. As such, the initial outflow of government funds to purchase the MBS would be offset by ongoing cash inflows represented by the monthly mortgage payments. Further, the government eventually may be able to sell the assets, though whether at a gain or loss will remain to be seen. While incremental borrowing to obtain the funds necessary to purchase the MBS may add to the [[United States public debt]], the net effect will be considerably less as the incremental debt will be offset to a large extent by the MBS assets.<ref>Thompson, Mark. [https://web.archive.org/web/20080925090441/http://www.time.com/time/politics/article/0,8599,1843941,00.html "7 Questions About the $700 Billion Bailout"], ''Time'', September 24, 2008.</ref><ref>[http://www.realclearpolitics.com/video_log/2008/09/a_discussion_about_the_economy_1.html "Rose-Barney Frank Interview"]</ref>

A key challenge would be valuing the purchase price of the MBS, which is a complex exercise subject to a multitude of variables related to the housing market and the credit quality of the underlying mortgages.<ref>Luhby, Tami (September 24, 2008). [https://money.cnn.com/2008/09/24/news/economy/paulson_frank/index.htm?cnn=yes "Congress Advances on Bailout Deal"], [[CNNMoney.com]].</ref> The ability of the government to offset the purchase price (through mortgage collections over the long-run) depends on the valuation assigned to the MBS at the time of purchase. For example, Merrill Lynch wrote down the value of its MBS to approximately 22 cents on the dollar in Q2 2008.<ref>Keoun, Bradley. [https://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=a6IfH7HIhBmg "Merrill Sells $8.55 Billion of Stock, Unloads CDOs"], [[Bloomberg.com]], July 29, 2008.</ref> Whether the government is ultimately able to resell the assets above the purchase price or will continue to merely collect the mortgage payments is an open item.

On February 10, 2009, the newly confirmed Secretary of the Treasury [[Timothy Geithner]] outlined his plan to use the $300 billion (~${{Format price|{{Inflation|index=US-GDP|value=300000000000|start_year=2009}}}} in {{Inflation/year|US-GDP}}) or so dollars remaining in the TARP funds. He mentioned that the U.S. Treasury and Federal Reserve wanted to help fund private investors to buy toxic assets from banks, but few details have yet been released.<ref name='Deborah Solomon'>{{cite news | title= Market Pans Bank Rescue Plan | date= February 11, 2009 | work= The Wall Street Journal | url = https://www.wsj.com/articles/SB123427167262568141 | access-date = February 12, 2009 | first=Deborah | last=Solomon}}</ref> There is still some skepticism about the premise that taxpayers can buy troubled assets without having to overpay. Oppenheimer & Company analyst Meridith Whitney argues that banks will not sell bad assets at fair market values because they are reluctant to take asset write downs.<ref name="Whitney">{{cite news | title= Meredith Whitney: A Bad Bank Won't Save Banks | date= January 29, 2009 | work=[[Business Insider]] | url = http://www.businessinsider.com/2009/1/meredith-whitney-a-bad-bank-wont-save-us |access-date=February 15, 2009 }}</ref> Removing toxic assets would also reduce the volatility of banks' stock prices. Because stock is a [[call option]] on a firm's assets, this lost [[Volatility (finance)|volatility]] will hurt the stock price of distressed banks. Therefore, such banks will only sell toxic assets at above market prices.<ref>{{cite journal |last1=Wilson |first1=Linus |title=The put problem with buying toxic assets |journal=Applied Financial Economics |date=January 2010 |volume=20 |issue=1–2 |pages=31–35 |doi=10.1080/09603100903262954|ssrn=1343625|s2cid=218640283 }}</ref>

On April 6, 2008, the [[State Foreclosure Prevention Working Group]] reported that the pace of foreclosures exceeded the capacity of homeowner rescue programs, such as the [[Hope Now Alliance]], in the first quarter of 2008.<ref>Christie, Les. [https://money.cnn.com/2008/04/28/real_estate/Hope_Now_workouts_slow/ "Housing relief efforts slow as pace of foreclosures rise"], [[CNNMoney.com]], April 28, 2008.</ref>

===Sweeping powers===
The original plan would have granted the Secretary of the Treasury unlimited power to spend,<ref name="Nomi Prins"/> proofing their actions against congressional or judicial review. Section 8 of the Paulson proposal states: "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."<ref name="plan0920nyt"/> This provision was not included in the final version.

==Rationale for the bailout==

===Government officials===

In his testimony before the U.S. Senate, Treasury Secretary [[Henry Paulson]] summarized the rationale for the $700 billion (~${{Format price|{{Inflation|index=US-GDP|value=700000000000|start_year=2008}}}} in {{Inflation/year|US-GDP}}) bailout:<ref>[http://www.treasury.gov/press-center/press-releases/Pages/hp1153.aspx (Press Release) Testimony by Secretary Henry M. Paulson, Jr. before the Senate Banking Committee], [[United States Department of the Treasury]], September 23, 2008.</ref>

*'''Stabilize the economy:''' "We must... avoid a continuing series of financial institution failures and frozen credit markets that threaten American families' financial well-being, the viability of businesses both small and large, and the very health of our economy."
*'''Improve liquidity:''' "These bad loans have created a chain reaction and last week our credit markets froze&nbsp;– even some Main Street non-financial companies had trouble financing their normal business operations. If that situation were to persist, it would threaten all parts of our economy."
*'''Comprehensive strategy:''' "We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil. And that root cause is the housing correction which has resulted in illiquid mortgage-related assets that are choking off the flow of credit which is so vitally important to our economy. We must address this underlying problem, and restore confidence in our financial markets and financial institutions so they can perform their mission of supporting future prosperity and growth."
*'''Immediate and significant:''' "This troubled asset relief program has to be properly designed for immediate implementation and be sufficiently large to have maximum impact and restore market confidence. It must also protect the taxpayer to the maximum extent possible, and include provisions that ensure transparency and oversight while also ensuring the program can be implemented quickly and run effectively."
*'''Broad impact:''' "This troubled asset purchase program on its own is the single most effective thing we can do to help homeowners, the American people and stimulate our economy."

In his testimony before the U.S. Senate on September 23, 2008, Fed Chairman [[Ben Bernanke]] also summarized the rationale for the $700 billion (~${{Format price|{{Inflation|index=US-GDP|value=700000000000|start_year=2008}}}} in {{Inflation/year|US-GDP}}) bailout:<ref>[http://www.federalreserve.gov/newsevents/testimony/bernanke20080923a1.htm Chairman Ben S. Bernanke Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate], [[Federal Reserve System]], September 23, 2008.</ref>

*'''Investor confidence:''' "Among the firms under the greatest pressure were [[Fannie Mae]] and [[Freddie Mac]], [[Lehman Brothers]], and, more recently, [[American International Group]] (AIG). As investors lost confidence in them, these companies saw their access to liquidity and capital markets increasingly impaired and their stock prices drop sharply." He also stated: "Purchasing impaired assets will create liquidity and promote [[price discovery]] in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions. More generally, removing these assets from institutions' balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth."
*'''Impact on the economy and GDP:''' "Extraordinarily turbulent conditions in global financial markets... these conditions caused equity prices to fall sharply, the cost of short-term credit—where available—to spike upward, and liquidity to dry up in many markets. Losses at a large money market mutual fund sparked extensive withdrawals from a number of such funds. A marked increase in the demand for safe assets—a flight to quality—sent the yield on Treasury bills down to a few hundredths of a percent. By further reducing asset values and potentially restricting the flow of credit to households and businesses, these developments pose a direct threat to economic growth."

Regarding the $700 billion number, ''Forbes.com'' quoted a Treasury spokeswoman: "It's not based on any particular data point. We just wanted to choose a really large number."<ref>[https://web.archive.org/web/20080925143539/http://www.forbes.com/home/2008/09/23/bailout-paulson-congress-biz-beltway-cx_jz_bw_0923bailout.html Bad News For The Bailout], ''Forbes.com'', September 23, 2008</ref>

===Journalists===

According to CNBC commentator [[Jim Cramer]], large corporations, institutions, and wealthy investors were pulling their money out of bank money market funds, in favor of government-backed [[Treasury security#Treasury bill|Treasury bills]]. Cramer called it "an invisible run on the banks," one that has no lines in the lobby but pushes banks to the breaking point nonetheless. As a bank's capital reserve of deposits evaporate, so too does its ability to lend and correspondingly make money. "The lack of confidence inspired by Lehman's demise, the general poor health of many banks, this is going to turn this into an intractable moment," Cramer said, "if someone in the government doesn't start pushing for more deposit insurance."<ref>[http://seekingalpha.com/article/97595-it-could-happen-cramer-s-mad-money-9-26-08?source=yahoo Cramer views]</ref>

==Reaction to the initial proposal==

Skepticism regarding the plan occurred early on in the House. Many [[Member of Congress|members of Congress]], including the House of Representatives, did not support the plan initially, mainly conservative free-market Republicans and liberal anti-corporate Democrats.<ref>{{cite web|url=http://www.10zenmonkeys.com/2008/09/24/25-harshest-reactions-to-the-wall-street-bailout/ |title=25 Harshest Reactions to the Wall Street Bailout |date=September 24, 2008 |access-date=November 16, 2008}}</ref> Alabama Republican [[Spencer Bachus]] has called the proposal "a gun to our head."<ref>{{cite news|url=https://www.reuters.com/article/vcCandidateFeed2/idUSTRE48Q3GG20080927?pageNumber=2&virtualBrandChannel=10112 |title=Bailout push is fueled by market fears, pizza |work=Reuters |author=Kevin Drawbaugh |date=September 27, 2008 |access-date=September 30, 2008|archive-url=https://web.archive.org/web/20081001104901/https://www.reuters.com/article/vcCandidateFeed2/idUSTRE48Q3GG20080927?pageNumber=2&virtualBrandChannel=10112|archive-date=October 1, 2008}}</ref>

===Immediate market reactions===
On September 19, 2008, when news of the bailout proposal emerged, the U.S. stock market rose by 3%. Foreign stock markets also surged, and foreign currencies corrected slightly, after having dropped earlier in the month. The value of the [[United States dollar|U.S. dollar]] dropped compared to other world currencies after the plan was announced.<ref>Twaronite, Lisa and Levine, Deborah. [http://www.marketwatch.com/news/story/bailout-price-tag-pressures-dollar/story.aspx?guid={08C21F9F-0E8A-492D-BD4F-522177453E90} "Dollar buckles under bailout's fiscal weight"], [[MarketWatch]], September 22, 2008.</ref><ref>[https://finance.yahoo.com/news/us-dollar-slips-versus-euro-131000911.html "Dollar slips vs yen and euro, U.S. plan in focus"], ''The Guardian'', September 22, 2008.</ref> The front end oil futures contract spiked more than $25 a barrel during the day Monday September 22, ending the day up over $16. This was a record for the biggest one-day gain.<ref>Jacobs, Stevenson. [https://web.archive.org/web/20080923040239/http://biz.yahoo.com/ap/080922/oil_prices.html "Oil makes biggest single-day price jump ever"], [[Yahoo! Finance]], September 22, 2008.</ref> However, there are other factors that caused the massive spike in oil prices. Traders who got "caught" at the end of the October contract session were forced to purchase oil in large batches to cover themselves, adding to the surge in prices.<ref>Shenk, Mark. [https://www.bloomberg.com/apps/news?pid=20601103&sid=aa2880cO2dNU&refer=us "Oil Posts Biggest Gain as Traders Caught in End-Month Squeeze"], [[Bloomberg.com]], September 22, 2008.</ref> Further out, oil futures contracts rose by about $5 (~${{Format price|{{Inflation|index=US|value=5|start_year=2008}}}} in {{Inflation/year|US}}) per barrel. Mortgage rates increased following the news of the bailout plan. The 30-year [[fixed-rate mortgage]] averaged 5.78% in the week before the plan was announced; for the week ending September 25, the average rate was 6.09%,<ref>Hoak, Amy. [http://www.marketwatch.com/news/story/mortgage-rates-leap-wake-bailout/story.aspx?guid=%7B5EFFE441-D731-41AD-A8BE-773A18B5B23E%7D&dist=msr_1 "Mortgage rates jump in wake of bailout plan"], [[MarketWatch]], September 25, 2008.</ref> still far below the average rate during the [[early 1990s recession]], when it topped 9.0%.<ref>{{cite web|url=https://www.huffingtonpost.com/dean-baker/the-credit-squeeze-scare_b_131072.html|title=The Credit Squeeze Scare|first=Dean|last=Baker|work=The Huffington Post|date=October 2, 2008}}</ref>

===Potential conflict of interest===
There was concern that the current plan created a [[conflict of interest]] for Paulson. Paulson was a former CEO of [[Goldman Sachs]], which stood to benefit from the bailout. Paulson had hired Goldman executives as advisors and Paulson's former advisors had joined banks that were also to benefit from the bailout. Furthermore, the original proposal exempted Paulson from [[judicial oversight]]. Thus, there was concern that former illegal activity by a financial institution or its executives might be hidden.<ref>Stein, Sam. [https://www.huffingtonpost.com/2008/09/22/paulsons-conflicts-of-int_n_128476.html "Paulson's Conflicts Of Interest Spark Concern"], [[Huffington Post]], September 22, 2008.</ref><ref>Hall, Kevin G. [www.mcclatchydc.com/.../can-you-trust-a-wall-street-veteran.html "Is it safe to trust a Wall Street veteran with a Wall Street bailout?"], McClatchy, September 24, 2008. Retrieved October 17, 2012.</ref><ref>Shenn, Jody. [https://www.bloomberg.com/apps/news?pid=20601087&sid=a4ukqrA3RFyc&refer=home "Paulson Debt Plan May Benefit Mostly Goldman, Morgan"], [[Bloomberg.com]], September 22, 2008.</ref>

The Treasury staff member responsible for administering the bailout funds was [[Neel Kashkari]], a former vice-president at [[Goldman Sachs]].{{citation needed|date=July 2018}}

In the Senate, Senator [[Judd Gregg]] (R-NH) was the leading Republican author of the TARP program while he had a multimillion-dollar investment in the Bank of America.<ref>{{cite web |url=http://pfds.opensecrets.org/N00000444_2007.pdf |first=Judd |last=Gregg |author-link=Judd Gregg |title=Financial Disclosure Report for the year 2007 |publisher=[[United States Senate]] |via=opensecrets.org}}</ref><ref>Zajac, Andrew (February 4, 2009). ''"Commerce Nominee's Own Finances Have Suffered"''. Chicago Tribune.</ref>

===Views from the public, politicians, financiers, economists, and journalists===

==== The public ====

Protests opposing the bailout occurred in over 100 cities across the United States on Thursday September 25.<ref>Schubert, Elizabeth. [https://web.archive.org/web/20081003062436/http://www.13wham.com/news/local/story.aspx?content_id=bc9e1711-37fe-451a-a0e5-dbbf53a60fce&rss=102 "Rochester Protest Against Bailout One of Many Across Country"], ABC 13Wham, Rochester, New York, September 26, 2008.</ref> Grassroots group [[TrueMajority]] said its members organized over 251 events in more than 41 states.<ref>http://therealnews.com/id/2422/September28,2008/Bailout+sparks+anger</ref> The largest gathering has been in [[New York City]], where more than 1,000 protesters gathered near the [[New York Stock Exchange]] along with labor union members organized by New York Central Labor Council.<ref>{{cite news|url=https://www.reuters.com/article/domesticNews/idUSTRE48O8KJ20080925|title=Labor unions protest in New York against bailout |last=Wiessner|first=Christian|date=September 25, 2008|work=Reuters|access-date=September 26, 2008}}</ref><ref name="buying"/> Other grassroots groups have planned rallies to protest against the bailout,<ref>{{cite news|url=https://money.cnn.com/2008/09/25/news/economy/bailout_protests/?postversion=2008092517|title=Bailout foes hold day of protests|last=Rooney|first=Ben|date=September 25, 2008|publisher=CNN|access-date=September 26, 2008}}</ref> while outraged citizens continue to express their opposition online through blogs and dedicated web sites.<ref>{{cite web|url=http://www.killwallstreet.com/|title=Kill Wall Street dot com — (BETA)}}</ref>

* In a survey conducted September 19–22 by the [[Pew Research Center]], by a margin of 57 percent to 30 percent, Americans supported the bailout when asked "As you may know, the government is potentially investing billions to try and keep financial institutions and markets secure. Do you think this is the right thing or the wrong thing for the government to be doing?"<ref>[http://people-press.org/reports/pdf/452.pdf 57% of Public Favors Wall Street Bailout] {{webarchive|url=https://web.archive.org/web/20081001214431/http://people-press.org/reports/pdf/452.pdf |date=October 1, 2008 }}, [[Pew Research Center]], September 23, 2008.</ref>
* In a survey conducted September 19–22 by [[Bloomberg.com|Bloomberg]]/''[[Los Angeles Times]]'', by a margin of 55 percent to 31 percent, Americans opposed the bailout when asked whether "the government should use taxpayers' dollars to rescue ailing private financial firms whose collapse could have adverse effects on the economy and market, or is it not the government's responsibility to bail out private companies with taxpayers' dollars?".<ref>Benjamin, Matthew. [https://www.bloomberg.com/apps/news?pid=20601087&sid=aYK_5_fV5D4M&refer=home "Americans Oppose Bailouts, Favor Obama to Handle Market Crisis"]. [[Bloomberg.com]]. September 24, 2008. Retrieved September 25, 2008.</ref><ref>Goldman, Julianna and Chen, Edwin. [https://www.bloomberg.com/apps/news?pid=20601103&sid=ab6vvSYcqmtI&refer=u "Obama, McCain Say Government Must Recoup Bailout Cost (Update1)"], [[Bloomberg.com]], September 24, 2008. Retrieved September 25, 2008.</ref>
* In a survey conducted September 24 by ''[[USA Today]]''/[[The Gallup Organization|Gallup]], when asked "As you may know, the Bush administration has proposed a plan that would allow the Treasury Department to buy and re-sell up to $700 billion of distressed assets from financial companies. What would you like to see Congress do?", 56 percent of respondents wanted Congress to pass a plan different from the original Paulson proposal, 22 percent supported the Paulson proposal in its initial form, and 11 percent wanted Congress to take no action.<ref>Newport, Frank. [http://www.gallup.com/poll/110746/Americans-Favor-Congressional-Action-Crisis.aspx "Americans Favor Congressional Action on Crisis"], [[The Gallup Organization]], September 26, 2008.</ref>
* Senator [[Sherrod Brown]] said he had been getting 2,000 e-mail messages and telephone calls a day, roughly 95 percent opposed.<ref>[https://www.nytimes.com/2008/09/25/business/25voices.html Constituents Make Their Bailout Views Known], ''The New York Times'', September 25, 2008. Retrieved September 25, 2008.</ref>
* As of Thursday September 25, Senator [[Dianne Feinstein]]'s (D-Calif.) offices had received a total of 39,180 e-mails, calls. and letters on the bailout, with the overwhelming majority of constituents against it.<ref name="buying">[https://www.latimes.com/business/la-fi-voxpop26-2008sep26,0,3246836.story "Public isn't buying Wall Street bailout"], ''[[Los Angeles Times]]'', September 26, 2008.</ref>

==== Politicians ====
[[File:Obama senate 10 01 08.ogg|300px|thumb|thumbtime=0:10|Then-senator [[Barack Obama]] addresses the Senate on the [[2008 financial crisis]] and argues in favor of the bailout bill. [[commons:File:Obama senate 10 01 08.ogg|View clip on commons]]. {{cite web|url=http://metavid.org/wiki/Stream:Senate_proceeding_10-01-08_00/2:38:38/2:53:07|title=Barack Obama support of Bailout|access-date=October 16, 2008|archive-url=https://web.archive.org/web/20081223223207/http://metavid.org/wiki/Stream:Senate_proceeding_10-01-08_00/2:38:38/2:53:07|archive-date=December 23, 2008|url-status=dead}}]]

Supporters of the plan included presidential candidates [[Barack Obama]] and [[John McCain]], and [[Prime Minister of the United Kingdom|British Prime Minister]] [[Gordon Brown]].<ref>[https://www.theguardian.com/business/2008/sep/27/wallstreet.useconomy5 "Brown Backs Bush's Bail-Out Plan"]. ''The Guardian''. September 26, 2008.</ref><ref>Tumulty, Karen and Jay Newton-Small. [https://archive.today/20130204155544/http://www.time.com/time/printout/0,8816,1845092,00.html "Can Congress Build a Better Bailout?"], ''Time'', September 26, 2008.</ref>

Critics included Senator [[Bernie Sanders]],<ref>{{Cite web |url=https://www.sanders.senate.gov/newsroom/press-releases/2008/10/01/wall-street-bailout |title=Wall Street Bailout - Senator Bernie Sanders of Vermont |access-date=May 2, 2019 |archive-date=May 2, 2019 |archive-url=https://web.archive.org/web/20190502095609/https://www.sanders.senate.gov/newsroom/press-releases/2008/10/01/wall-street-bailout |url-status=dead }}</ref> Former Arkansas Governor [[Mike Huckabee]], Congressman [[Ron Paul]], [[Libertarian Party (United States)|Libertarian]] presidential candidate [[Bob Barr]], and Senators [[Christopher Dodd]], [[Richard Shelby]], and [[Jim Bunning]].<ref name="Washington Post-Senate coverage-2008-09-23">Ahrens, Frank. [https://web.archive.org/web/20120323152238/http://voices.washingtonpost.com/livecoverage/2008/09/senate_spanks_regulators_past.html "Senate Goes After Regulators Past, Present"], ''[[The Washington Post]]'', September 23, 2008.</ref><ref>Patrick Yoest. [http://www.nasdaq.com/aspxcontent/NewsStory.aspx?cpath=20080922%5cACQDJON200809221731DOWJONESDJONLINE000634.htm "Update: Shelby: Treasury Proposal 'Neither Workable Nor Comprehensive{{'"}}], Dow Jones Newswires. September 22, 2008. Retrieved September 25, 2008.</ref><ref>Mullins, Luke. [https://www.usnews.com/blogs/the-home-front/2008/09/23/sen-jim-bunning-the-bailout-is-un-american.html "Sen. Jim Bunning: The Bailout Is Un-American"] {{Webarchive|url=https://web.archive.org/web/20090529010640/http://www.usnews.com/blogs/the-home-front/2008/09/23/sen-jim-bunning-the-bailout-is-un-american.html |date=May 29, 2009 }}, [[U.S. News & World Report]], September 23, 2008.</ref><ref>[[Ron Paul|Paul, Ron]]. [http://www.cnn.com/2008/POLITICS/09/23/paul.bailout/index.html "Commentary: Bailouts will lead to rough economic ride"], [[CNN]], September 23, 2008.</ref><ref>[https://web.archive.org/web/20080909165519/http://blog.bobbarr2008.com/2008/09/08/barrbailout-from-hell/ Barr: "bailout from hell"]</ref>

In a ''[[The Wall Street Journal|Wall Street Journal]]'' opinion piece, Senator [[Hillary Clinton]] advocated addressing the rate of mortgage defaults and foreclosures that ignited this crisis, not just bailing out Wall Street firms: "If we do not take action to address the crisis facing borrowers, we'll never solve the crisis facing lenders." She proposed a new [[Home Owners' Loan Corporation]] (HOLC), similar to that used after the Depression and which was launched in 1933. The new HOLC was to administer a national program to help homeowners refinance their mortgages. She also called for a moratorium on foreclosures and freezing of rate hikes in adjustable-rate mortgages.<ref name="online1">[[Hillary Clinton|Clinton, Hillary Rodham]]. [https://www.wsj.com/articles/SB122230767702474045 Let's Keep People In Their Homes], [[The Wall Street Journal]], September 25, 2008.</ref>

[[Barack Obama]], the Democratic presidential candidate, said that any bailout had to include plans to recover the money, protect working families and big financial institutions, and be crafted to prevent such a crisis from happening again.<ref>Hurst, Steven ([[Associated Press]]). [http://usatoday30.usatoday.com/news/topstories/2008-09-22-84891926_x.htm McCain, Obama raise doubts about bailout plan], ''[[USA Today]]'', September 22, 2008</ref>

==== Financiers ====

Former [[Federal Reserve Chairman]] [[Alan Greenspan]] supported the Paulson plan.<ref name="hero">Jagger, Suzy. [https://web.archive.org/web/20080923195701/http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4792075.ece "Henry Paulson hailed as a hero for stemming market slide, but all are not convinced"], ''[[The Times]]'', September 20, 2008.</ref>

Investor [[Warren Buffett]] says he could put in $10B plus $90B [[nonrecourse debt]]; that is, without having to repay beyond $10B if mortgages did not repay. (This is 10 to 1 [[leverage (finance)|leverage]], 10 times upside with 1 times downside.) He also said that the government should pay market price, which may be below the carry value.<ref>[http://www.clusterstock.com/2008/9/warren-buffett-reveals-bailout-s-dirty-little-secret Warren Buffett Reveals Bailout's Dirty Little Secret<!-- Bot generated title -->]</ref> Buffett says "I would think they might insist on the directors of the institutions that participate in this program waiving all director's fees for a couple of years. They should, maybe, eliminate bonuses." Buffett says "if someone wants to sell a hundred billion of these instruments to the Treasury, let them sell two or three billion in the market and then have the Treasury match that,&nbsp;...&nbsp;. You don't want the Treasury to be a [[patsy]]."<ref>[https://www.cnbc.com/2008/09/24/cnbc-interview-transcript-video-part-1-warren-buffett-explains-his-5b-goldman-investment.html "CNBC Interview Transcript & Video, Part 1: Warren Buffett Explains His $5B (~${{Format price|{{Inflation|index=US-GDP|value=5000000000|start_year=2008}}}} in {{Inflation/year|US-GDP}}) Goldman Investment"], [[CNBC]], September 24, 2008.</ref> Mr. Buffett's company owns financial companies which will benefit directly or indirectly.

Investor [[George Soros]] opposed the original Paulson plan: "Mr Paulson's proposal to purchase distressed mortgage-related securities poses a classic problem of asymmetric information. The securities are hard to value but the sellers know more about them than the buyer: in any auction process the Treasury would end up with the dregs. The proposal is also rife with latent conflict of interest issues. Unless the Treasury overpays for the securities, the scheme would not bring relief." – but called [[Barack Obama]]'s list of conditions for the plan "the right principles".<ref>[[George Soros|Soros, George]]. [http://www.ft.com/cms/s/0/9973c5b0-8a6d-11dd-a76a-0000779fd18c.html "Paulson cannot be allowed a blank cheque"], ''[[Financial Times]]'', September 24, 2008.</ref>

Other critics included [[Carl Icahn]]<ref name="hero"/> [[Jim Rogers]],<ref>Dorfman, Dan. [http://www.nysun.com/business/for-against-uncle-sams-bailout/86297/ "For, Against Uncle Sam's Bailout"], [[The New York Sun]], September 22, 2008.</ref> and [[William Seidman]]. Seidman compared the bailout with action he and his team at the [[Resolution Trust Corporation]] took during the [[savings and loan crisis]] of the 1980s: "What we did, we took over the bank, nationalized it, fired the management, took out the bad assets and put a good bank back in the system."<ref>[https://www.bloomberg.com/apps/news?pid=newsarchive&sid=aL39kRBP7IhU William Seidman, Who Led Cleanup of S&L Crisis, Dies], ''Bloomberg'', May 13, 2009</ref>

==== Economists ====

{{bulleted list 
| In an open letter sent to Congress on September 24, over 100 university [[economist]]s expressed "great concern for the plan proposed by Treasury Secretary Paulson". The letter, endorsed within a few days by 231 economists at American universities, has been described as "the emerging consensus from academic economists".<ref>[[Justin Wolfers]]: [http://freakonomics.blogs.nytimes.com/2008/09/23/economists-on-the-bailout/ Economists on the Bailout] [[Freakonomics]]/''The New York Times'', September 23, 2008</ref> Its authors described three "fatal pitfalls" they perceived in the plan as it was initially proposed:
 {{ordered list
 | Its fairness. The plan is a subsidy to investors at taxpayers' expense. Investors who took risks to earn profits must also bear the losses. [...] The government can ensure a well-functioning financial industry [...] without bailing out particular investors and institutions whose choices proved unwise.
 | Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.
 | Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.<ref>[http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm The letter was sent to Congress on Wed Sept 24 2008 regarding the Treasury plan as outlined on that date] {{webarchive|url=https://web.archive.org/web/20080924140545/http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm |date=September 24, 2008 }}</ref>
 }}
| Nobel Prize-winning economist [[Joseph Stiglitz]] strongly criticized the bill in an article written for ''[[The Nation]]''.<ref>[[Joseph Stiglitz|Stiglitz, Joseph]]. [http://www.thenation.com/doc/20081013/stiglitz "A Better Bailout"] {{Webarchive|url=https://web.archive.org/web/20081220144716/http://www.thenation.com/doc/20081013/stiglitz |date=December 20, 2008 }}, [[The Nation]], September 26, 2008.</ref>
| Economist, ''New York Times'' columnist and Nobel laureate [[Paul Krugman]] recommended that, instead of purchasing the assets, equity capital could be provided to the banks directly in exchange for [[preferred stock]]. This would strengthen the financial position of the banks, encouraging them to lend. Dividends would be paid to the government on the preferred shares. This would be similar to what happened during the [[savings and loan crisis]] and with the [[Federal takeover of Fannie Mae and Freddie Mac|GSE bailout]]. This avoids the valuation questions involved in the direct purchase of MBS.<ref name="nytimes1">Krugman, Paul. [https://www.nytimes.com/2008/09/22/opinion/22krugman.html Cash for Trash], ''The New York Times'', September 21, 2008.</ref> This is an approach based on the 1990s [[Swedish banking rescue]].<ref name="krugman1">{{cite news | first = Paul | last = Krugman | author-link = Paul Krugman | url=https://krugman.blogs.nytimes.com/2008/09/28/the-good-the-bad-and-the-ugly/ |title=The good, the bad, and the ugly |work=The New York Times |date=September 28, 2008 |access-date=October 1, 2008}}</ref>
| The first half of the bailout money was primarily used to buy preferred stock in banks instead of troubled mortgage assets. This has led some economists to argue that buying preferred stock will be far less effective in getting banks to lend efficiently than buying common stock.<ref name="abstract1">{{cite journal |last1=Wilson |first1=Linus |last2=Wu |first2=Yan Wendy |title=Common (stock) sense about risk-shifting and bank bailouts |journal=Financial Markets and Portfolio Management |date=January 2010 |volume=24 |issue=1 |pages=3–29 |doi=10.1007/s11408-009-0125-y|ssrn=1321666|s2cid=153441066 }}</ref><ref name="abstract2">{{cite journal |last1=Wilson |first1=Linus |title=Debt overhang and bank bailouts |journal=International Journal of Monetary Economics and Finance |date=2012 |volume=5 |issue=4 |page=395 |doi=10.1504/IJMEF.2012.052512|ssrn=1336288}}</ref>
| Soon after, a study published in 2009 shows that market's reaction to the announcement of a rescue plan is positive independently to the type of the intervention. It indicates that a timely bad plan could be better than an untimely good one.<ref>{{cite news | ssrn= 1476786| title=Rescuing Banks from the Effects of the Financial Crisis | publisher=SSRN Working Paper | year=2009| first=Michele | last=Fratianni|author2=Francesco Marchionne}}</ref>
}}

In hindsight, economists generally agree that unemployment would have been significantly higher without the program.<ref>{{cite web |url=http://www.igmchicago.org/surveys/bank-bailouts |website=igmchicago.org |title=Bank Bailouts |date=March 6, 2012}}</ref>

==== Journalists ====
* ''[[The Economist]]'' magazine said that although "Mr Paulson's plan is not perfect ... it is good enough" and that "Congress should pass it—and soon."<ref>[https://www.economist.com/opinion/displayStory.cfm?source=hptextfeature&story_id=12305249 America's bail-out plan: I want your money], [[The Economist]], September 25, 2008.</ref>
* "The deal proposed by Paulson is nothing short of outrageous. It includes no oversight of his own closed-door operations. It merely gives congressional blessing and funding to what he has already been doing, ad hoc." - [[Robert Kuttner]]<ref name="American Prospect-Kuttner-2008-09-23">{{cite news | first=Robert | last=Kuttner | title=Paulson's Folly | date=September 22, 2008 | url=http://www.prospect.org/cs/articles?article=paulsons_folly | work=[[The American Prospect]] | author-link=Robert Kuttner | access-date=September 23, 2008 | archive-date=August 10, 2011 | archive-url=https://web.archive.org/web/20110810210108/http://prospect.org/cs/articles?article=paulsons_folly | url-status=dead }}</ref>
*Journalist [[Rosalind Resnick]] favors a hypothetical scenario in which "consumers and businesses would be able to borrow at the fed funds rate at 2 percent, just like the big banks do. This means that every cash-strapped homeowner would be able to refinance his mortgage and cut his payments in half, saving thousands of homes from foreclosure. Consumers could also refinance their credit card balances, auto loans and other debt at interest rates they can afford" and that this ''plan'' "would cost U.S. taxpayers absolutely nothing."<ref>Resnick, Rosalind. [https://web.archive.org/web/20080927034838/http://vestpocketconsultant.entrepreneur.com/2008/09/22/memo-to-uncle-sam-small-business-needs-your-help-too/ Memo to Uncle Sam: Small Business Needs Your Help, Too!], Entrepreneur.com, September 22, 2008.</ref>

==Alternative proposals==
Suggested alternative approaches to address the issues underlying the [[2008 financial crisis]] included: mortgage assistance proposals try to increase the value of the asset base while limiting the disruption of foreclosure; bank recapitalization through equity investment by the government; asset liquidity approaches to engage market mechanisms for valuing troubled assets; and financial market reforms promoting transparency and conservatism to restore trust by market investors.

===Mortgage assistance===

*Conservative Republican Representatives offered a mortgage insurance plan as an alternative to the bailout.<ref>{{cite news|url=https://www.reuters.com/article/newsOne/idUSTRE48O7QB20080925 |title=Conservative Republicans offer bailout alternative|work=Reuters |date=September 25, 2008 |access-date=September 30, 2008 | first=Kevin | last=Drawbaugh}}</ref> There had been speculation that U.S. Senator [[John McCain]] may have supported this plan<ref>Sunnucks, Mike. [http://www.bizjournals.com/phoenix/stories/2008/09/22/daily57.html "McCain may back alternative to bank bailout"], Phoenix Business Journal, September 25, 2008.</ref> but this was not confirmed.
*Senator [[Hillary Clinton]] proposed a new [[Home Owners' Loan Corporation]] (HOLC), similar to that used after the Depression, which was launched in 1933. The new HOLC would administer a national program to help homeowners refinance their mortgages. She also called for a moratorium on foreclosures and freezing of rate hikes in adjustable rate mortgages.<ref name="online1"/>
*Jonathan Koppell, Associate Professor of Politics and Management at the [[Yale School of Management]], recommended assisting homeowners by lowering interest rates on loans in default. The money spent would be repaid from profits when the homes eventually sell after the housing market has recovered.<ref>{{cite news|title=Economists say rescue plan still needs work|url=http://www.nbcnews.com/id/26994238|archive-url=https://web.archive.org/web/20150326182704/http://www.nbcnews.com/id/26994238|url-status=dead|archive-date=March 26, 2015|work=NBC News|first= John W.|last= Schoen|date=October 2, 2008|access-date=October 2, 2008}}</ref><ref>{{cite web|title= Jonathan GS Koppell|url= http://mba.yale.edu/faculty/profiles/koppell.shtml|access-date= October 2, 2008|archive-url= https://web.archive.org/web/20081008092009/http://mba.yale.edu/faculty/profiles/koppell.shtml|archive-date= October 8, 2008|url-status= dead}}</ref>

===Bank recapitalization===
* A ten-point plan by [[New York University]] economist [[Nouriel Roubini]] went beyond a [[Home Owners' Loan Corporation]] to include recreating a combination of a [[Resolution Trust Corporation]], and a [[Reconstruction Finance Corporation]].<ref>{{cite web|url=http://www.rgemonitor.com/roubini-monitor/253739/home_home_owners_mortgage_enterprise_a_10_step_plan_to_resolve_the_financial_crisis|title=HOME (Home Owners' Mortgage Enterprise): A 10 Step Plan to Resolve the Financial Crisis|date=September 24, 2008|access-date=September 30, 2008|archive-url=https://web.archive.org/web/20080927084422/http://www.rgemonitor.com/roubini-monitor/253739/home_home_owners_mortgage_enterprise_a_10_step_plan_to_resolve_the_financial_crisis|archive-date=September 27, 2008|url-status=dead}}</ref> Roubini has advocated bank recapitalization (by providing cash in exchange for preferred shares) and suspending all dividend payments.<ref name="web.archive">[https://web.archive.org/web/20081012063512/http://www.forbes.com/opinions/2008/10/08/recession-depression-keynes-oped-cx_nr_1009roubini.html Our Choice. Nouriel Roubini. October 9, 2008. Forbes]</ref>
*Economist [[Paul Krugman]] recommended equity investments in the banks, an approach similar to what happened during the [[Savings and loan crisis|S&L crisis]], the [[Federal takeover of Fannie Mae and Freddie Mac|GSE bailout]], and the 1990s [[Swedish banking rescue]]. This avoids the valuation questions involved in the direct purchase of MBS.<ref name="nytimes1"/><ref name="krugman1"/>
*The first half of the bailout money was primarily used to buy preferred stock in banks instead of troubled mortgage assets. This has led some economists to argue that buying preferred stock will be far less effective than buying common stock.<ref name="abstract1"/><ref name="abstract2"/>
*Luigi Zingales, Professor of Entrepreneurship and Finance at the [[University of Chicago]], proposed a special chapter of the bankruptcy code to convert banks' debt to equity which would improve capital adequacy ratios and enable a return to lending.<ref>{{cite web|url=http://www.voxeu.org/index.php?q=node/1670 |title=Why Paulson is Wrong|date=September 21, 2008|access-date=September 30, 2008}}</ref>
*Janet Tavakoli, a financial consultant and a former adjunct professor of derivatives at the University of Chicago's Graduate School of Business, criticized the bailout because in her view it hides problems and continues price uncertainty. She also advocates forced restructuring, with a combination of debt forgiveness and debt for equity swaps, rather than a bailout.<ref>{{cite web|title=Specific Proposed Alternative to (the Various Versions) of the Paulson Plan| url=http://www.tavakolistructuredfinance.com/TSF8.html|last=Tavakoli|first=Janet|date=September 25, 2008|access-date=September 30, 2008}}</ref><ref>{{cite news|work=Financial Times|title=An alternative to the Paulson plan – one that does not violate the spirit of democracy |url=http://www.ft.com/cms/s/0/d4649754-8dbe-11dd-83d5-0000779fd18c.html |last=Tavakoli|first=Janet|date=September 29, 2008|access-date=September 30, 2008}}</ref>

===Asset liquidity===

*Christopher Ricciardi, former [[Merrill Lynch]] banker, wrote a letter to Secretary Paulson proposing alternatively that the government should be backing some troubled assets to encourage private investors to purchase them — as opposed to the direct purchase of troubled assets from financial institutions.<ref>{{cite news|url=http://dealbook.blogs.nytimes.com/2008/09/26/former-merrill-banker-suggests-bailout-alternative/ |title=Former Merrill Banker Suggests Bailout Alternative - Mergers, Acquisitions, Venture Capital, Hedge Funds |work=The New York Times |author=Mark Klein |date=September 26, 2008 |access-date=September 30, 2008}}</ref>
*Investor [[Warren Buffett]] believed the government should pay market price for the assets rather than an artificially high hold-to-maturity price. The market price would be determined by selling a portion of the assets to private investors.<ref>{{cite web |title= Warren Buffett Reveals Bailout's Dirty Little Secret|url= http://www.clusterstock.com/2008/9/warren-buffett-reveals-bailout-s-dirty-little-secret |first=Henry|last=Blodget|date=September 24, 2008|access-date=September 30, 2008}}</ref>

===Financial market reform===

*[[Dominique Strauss-Kahn]], Managing Director of the [[International Monetary Fund]], recommended three near-term actions to assist banks: provision of liquidity, purchase of distressed assets, and recapitalization. In addition, he argued for addressing the structural issues with more prudential regulation, better accounting rules, and more transparency.<ref>{{cite web|title=A Systemic Crisis Demands Systemic Solutions|url=http://www.imf.org/external/np/vc/2008/092208.htm|first=Dominique|last=Strauss-Kahn|date=September 22, 2008|access-date=October 12, 2008}}</ref>

===Monetary consensus reform===
This process consisted of nationalizing most of the private industries.{{Citation needed|date=May 2015}} The short-term effects were evidently costly, but the beneficiary repercussions were vastly favorable to a sustainable economic future.{{Citation needed|date=May 2015}}
# Nationalize the federal reserve.
# Deregulate the corporate image of the United States.
# The rest of the proposal were equated with different variables and would have been acted upon according to the circumstances.

According to Jon Daemon, the proposal was dismissed by bureaucrats and lobbyist in accordance to the private banks and federal reserve dispatchers.<ref name="web.archive" />

==Legislative history==
Over the weekend (September 27–28), Congress continued to develop the proposal. That next Monday, the House put the resulting effort, the Emergency Economic Stabilization Act of 2008, to a vote. It did not pass. US stock markets dropped 8 percent, the largest percentage drop since [[Black Monday (1987)|Black Monday in 1987]].

Congressional leaders, including both presidential candidates, started working with the Bush Administration and the Treasury department on key negotiation points as they worked to finalize the plan. Key items under discussion included:<ref name="Vekshin">Vekshin, Alison. [https://www.bloomberg.com/apps/news?pid=20601087&sid=a3esgxRLNjzw&refer=home "Paulson, Lawmakers Narrowing Differences, Frank Says"], [[Bloomberg.com]], September 22, 2008.</ref><ref name="Rowley">Rowley, James and Alison Vekshin [http://bloomberg.com/apps/news?pid=20601087&sid=azwqk86I6nbk&refer=home "House Republicans Undercut Bush on Rescue, Slow Talks"] {{Webarchive|url=https://web.archive.org/web/20080929102520/http://www.bloomberg.com/apps/news?pid=20601087&sid=azwqk86I6nbk&refer=home |date=September 29, 2008 }}, [[Bloomberg.com]], September 26, 2008.</ref>

*Additional foreclosure avoidance and homeowner assistance
*Executive pay limits
*Government equity interests in firms participating in program, to provide additional taxpayer protection
*Judicial review, Congressional oversight and right to audit
*Structure and authority of the entities that will manage the program

===First House vote, September 29===
Just after midnight Sunday, September 28, leaders of the Senate and House, along with Treasury Secretary Paulson, announced a tentative deal had been reached to permit the government purchase of up to $700 billion in mortgage backed securities to provide liquidity to the security holders, and to stabilize U.S. financial firms and markets. The bill was made final later that Monday morning.<ref name='HCFS-Amendment to HR3997-2008-09-29'>
The bill as voted on September 29, 2008, was an amendment substituting the text of the "Emergency Economic Stabilization Act of 2008": into H.R. 3997, a bill with an entirely different legislative history.[https://web.archive.org/web/20081001053425/http://www.house.gov/apps/list/press/financialsvcs_dem/amend_001_xml.pdf Amendment to the Senate Amendment to H.R. 3997] House Committee on Financial Services (retrieved September 30, 2008). See also the committee's press release links: [http://www.house.gov/apps/list/press/financialsvcs_dem/press092808.shtml Emergency Economic Stabilization Act of 2008] {{webarchive|url=https://web.archive.org/web/20080930230606/http://www.house.gov/apps/list/press/financialsvcs_dem/press092808.shtml |date=September 30, 2008 }}.
</ref><ref>Draft bill as reported by ''The New York Times'': [http://graphics8.nytimes.com/packages/pdf/business/20080928bailout_text.pdf Draft of House bill to be voted on Monday, September 29, 2008]</ref> A debate and vote was scheduled for the House for Monday, September 29, to be followed by a Senate debate on Wednesday.<ref>{{cite web|url=https://www.nbcnews.com/id/wbna26884523 |title=House to meet Thursday after rejecting bailout |work=NBC News |date=September 29, 2008 |access-date=September 30, 2008}}</ref> In an early morning news conference, on Monday September 29, President George W. Bush expressed confidence that the bill would pass Congress, and that it would provide relief to the U.S. economy. A number of House Republicans remained opposed to the deal and intended to vote against it.<ref>[https://web.archive.org/web/20080929151313/http://thehill.com/leading-the-news/rank-and-file-gopers-not-thrilled-by-deal-2008-09-28.html Jackie Kucinich, "Rank and file GOPers not thrilled by deal", The Hill, 9/28/08]
</ref><ref>[http://www.winknews.com/news/local/29862524.html "Rep. Mack calls economic bailout plan 'gimmicky', won't support it", Wink News, 9/28/08] {{webarchive|url=https://web.archive.org/web/20081002080846/http://www.winknews.com/news/local/29862524.html |date=October 2, 2008 }}</ref><ref>{{cite web|url=https://www.nbcnews.com/id/wbna26940009 |title=Bush hails 'extraordinary' bailout deal |work=NBC News |date=September 29, 2008 |access-date=September 30, 2008}}</ref>

That same day, the legislation for the bailout was put before the [[United States House of Representatives]] and failed 205–228, with one not voting. Democrats voted 140–95 in favor of the legislation, while Republicans voted 133–65 against it.<ref name="Bloomberg-Vekshin-2008-09-29">
 {{cite news | first=Alison | last= Vekshin |author2=Laura Litvan | title= U.S. House Rejects $700 Billion Financial-Rescue Plan (Update5) | date= September 29, 2008 | publisher= Bloomberg LLC | url = https://www.bloomberg.com/apps/news?pid=20601087&sid=aeqvQcX6sRe4 | work = Bloomberg.com | access-date = September 29, 2008 }}
</ref><ref>[http://clerk.house.gov/cgi-bin/vote.asp?year=2008&rollnumber=674 Final Vote Results for Roll Call 674] (H R 3997 Recorded Vote September 29, 2008, 2:07 PM) Clerk, United States House of Representatives. Retrieved September 30, 2008.</ref><ref>[http://thomas.loc.gov/cgi-bin/bdquery/z?d110:H.R.3997: HR3997] {{Webarchive|url=https://web.archive.org/web/20081218124152/http://thomas.loc.gov/cgi-bin/bdquery/z?d110:H.R.3997: |date=December 18, 2008 }} Thomas, Library of Congress. (Access to legislative history; note that H.R.3997 is the vehicle for the Emergency Economic Stabilization Act of 2008. See documents on the House Committee on Financial Services: Summary of the "Emergency Economic Stabilization Act of 2008": [https://web.archive.org/web/20081001192757/http://www.house.gov/apps/list/press/financialsvcs_dem/summary_of_the_eesa2.pdf Summary of the "Emergency Economic Stabilization Act of 2008"] Access via the House Committee on Financial Services: [http://www.house.gov/apps/list/press/financialsvcs_dem/press092808.shtml Emergency Economic Stabilization Act of 2008] {{webarchive|url=https://web.archive.org/web/20080930230606/http://www.house.gov/apps/list/press/financialsvcs_dem/press092808.shtml |date=September 30, 2008 }} )</ref> During the legislative session, at the conclusion of the vote, the presiding chair declared the measure, HR3997, to be unfinished business.<ref name= 'House Clerk-Legislative Dat-2008-09-29'>[http://clerk.house.gov/floorsummary/floor.html?day=20080929&today=20080930 Legislative Day of September 29, 2008] {{Webarchive|url=https://web.archive.org/web/20081002003725/http://clerk.house.gov/floorsummary/floor.html?day=20080929&today=20080930 |date=October 2, 2008 }} 110th Congress, Second Session. Clerk of the United States House of Representatives. Retrieved September 30, 2008.</ref>

House Speaker [[Nancy Pelosi]] said at a press conference after the vote: "The legislation has failed. The crisis has not gone away. We must continue to work in a bipartisan manner."<ref name="NYT-Hulse-2008-09-29">{{cite news | first= Carl | last= Hulse |author2=David M. Herszenhorn | title= House Rejects Bailout Package, 228-205; Stocks Plunge | date= September 29, 2008 | url = https://www.nytimes.com/2008/09/30/business/30bailout.html| work = The New York Times | access-date = September 29, 2008 }}</ref> Senate Banking Committee Chairman [[Christopher Dodd]], a [[Connecticut]] Democrat, appearing at a joint press conference with Senator [[Judd Gregg]], a [[New Hampshire]] Republican, said a bailout plan could still pass Congress. Dodd said: "We don't intend to leave here without the job being done. While it may take another few days, we're confident that can happen."<ref name="Bloomberg-Vekshin-2008-09-29"/>

====Market reaction to September 29 vote====
Following the House vote, the [[Dow Jones Industrial Average]] dropped over 777 points in a single day, its [[List of largest daily changes in the Dow Jones Industrial Average|largest single-day point drop]] until 2018.<ref>{{cite news|url=https://news.yahoo.com/s/ap/20080929/ap_on_bi_ge/financial_meltdown |title=Bailout bill slapped aside; record stock plunge |agency=Associated Press |publisher=Yahoo! News |author=Julie Hirschfeld Davis |date=September 29, 2008 |access-date=September 30, 2008|archive-url=https://web.archive.org/web/20081003021448/https://news.yahoo.com/s/ap/20080929/ap_on_bi_ge/financial_meltdown|archive-date=October 3, 2008 }}</ref> The $1.2 trillion loss in market value received much media attention, although it still does not rank among the index's ten largest drops in percentage terms. The S & P lost 8.8%, its seventh worst day in percentage terms and its worst day since [[Black Monday (1987)|Black Monday]] in 1987. The NASDAQ composite also had its worst day since Black Monday, losing 9.1% in its third worst day ever. The [[TED spread]], the difference between what banks charge each other for a three-month loan and what the Treasury charges, hit a 26-year high of 3.58%; a higher rate for inter bank loans than Treasury loans is a sign that banks fear that their fellow banks won't be able to pay off their debts. Meanwhile, the price of U.S. [[light crude oil]] for November delivery fell $10.52 to $96.37 a barrel, its second largest one-day drop ever, on expectations of an economic slowdown reducing oil consumption and demand.<ref name=crushed>[https://money.cnn.com/2008/09/29/markets/markets_newyork/index.htm "Stocks crushed"], CNN.com, September 29, 2008</ref> The Dow Jones industrial average recovered 485 points or about 62% of the entire loss the very next day.<ref name= 'NYT-Hulse-2008-10-01' />

Markets, which had expected the bill to pass and had moved on to debating whether it would be sufficient, were already skittish after news that [[Wachovia Bank]] was being bought out by [[Citigroup]] to avoid collapse. The events were compounded by news from Europe that Dutch-Belgian [[Fortis Bank]] was given a $16.4 billion lifeline to avoid collapse, failing British bank [[Bradford & Bingley]] was nationalized, and Germany extended banking and real estate giant [[Hypo Real Estate]] billions to ensure its survival.<ref name=crushed/>

Later in October, after the bill had been passed, the Dow Jones Industrial Average would drop by more in [[List of largest daily changes in the Dow Jones Industrial Average|percentage terms]], and market volatility remained at historically high levels, as measured by the [[VIX]].

===Senate vote October 1===
[[File:7bil-bailout-senateVOTE.png|thumb|right|100px|{{center|74 yea – 21 nay}}]]
On Wednesday evening, October 1, 2008, the Senate debated and voted on a revised version of the Emergency Economic Stabilization Act of 2008 (EESA 2008). The legislation was framed as an amendment to [[HR1424]], substituting the entire bill with the newly revised text of the EESA 2008.<ref name='Senate CBHUA-Amend HR1424-2008-10-01'/> The amendment was approved by a 74–25 vote, and the entire bill was also passed by the same margin, 74–25 (R: 34-15, D: 40-10).<ref name='Senate Vote-212-Amendment'>{{cite news | title= Vote Summary: Question: On the Amendment (Dodd Amdt. No. 5685 ) - In the nature of a substitute | date= October 1, 2008 | publisher= Secretary of the United States Senate | url = https://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=110&session=2&vote=00212 | work = U.S. Senate Roll Call Votes 110th Congress - 2nd Session | access-date = October 1, 2008 }}</ref><ref name='Senate Vote-213-HR 1424'>{{cite news | title= Vote Summary: On Passage of the Bill (H. R. 1424 As Amended ) | date= October 1, 2008 | publisher= Secretary of the United States Senate | url = https://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=110&session=2&vote=00213 | work = U.S. Senate Roll Call Votes 110th Congress - 2nd Session | access-date = October 1, 2008 }}</ref> Only cancer-stricken Senator [[Ted Kennedy]] did not vote. Under the legislative rule for the bill, sixty votes were required to approve the amendment and the bill.<ref name= 'NYT-Hulse-Vote count-2008-10-01' /><ref name = 'NYT-Hulse-2008-10-01'>
{{cite news|author1=Hulse, Carl  |author2=Pear, Robert| title= Senate to Vote Today on the Bailout Plan |url=https://www.nytimes.com/2008/10/02/business/02bailout.html |date=October 1, 2008 |work=The New York Times |access-date=October 1, 2008 }}</ref> A House leader accused the Senate of legislating "by blunt force" without public consent.<ref>{{cite news |first=Mike |last=Soraghan |title=Senate adds renewable energy credits to bailout |url=http://www.bizjournals.com/sanjose/stories/2008/09/29/daily57.html |work=Silicon Valley / San Jose Business Journal |date=October 1, 2008 }}</ref>

Describing the Senate's reason for passing the bill, former Senator [[Evan Bayh]] "described a scene from 2008 where Ben Bernanke warned senators that the sky would collapse if the banks weren't rescued. 'We looked at each other,' said Bayh, 'and said, okay, what do we need.{{'"}}<ref>[[David Weigel|Weigel, David]] (December 13, 2010) [http://www.slate.com/blogs/blogs/weigel/archive/2010/12/13/why-glenn-beck-is-like-evan-bayh.aspx Why Glenn Beck is Like Evan Bayh], ''[[Slate.com]]''</ref>

===Second House vote, October 3===
[[File:7bil-bailout-house2ndVOTE.png|thumb|left|100px|{{center|263 yea – 171 nay}}]]
The revised [[HR1424]] was received from the Senate by the House, and on October 3, it voted 263-171 to enact the bill into law. Democrats voted 172 to 63 in favor of the legislation, while Republicans voted 108 to 91 against it; overall, 33 Democrats and 24 Republicans who had previously voted against the bill supported it on the second vote.<ref name="LOC-THOMAS-HR1424"/><ref name="NYT-Herszenhorn-2008-10-03"/>

President Bush signed the bill into law within hours of its enactment, creating a [[$700 billion dollar Treasury fund]] to purchase failing bank assets.<ref name="autogenerated1">NPR (October 3, 2008) [https://www.npr.org/templates/story/story.php?storyId=95336601] Retrieved October 17, 2012.</ref>

The revised plan left the $700 billion bailout intact and appended a stalled tax bill.<ref name= 'NYT-Hulse-2008-10-01' /> The law has three major divisions, Division A: the Emergency Economic Stabilization Act of 2008; Division B: Energy Improvement and Extension Act of 2008, and Division C: the Tax Extenders and Alternative Minimum Tax Relief Act of 2008.<ref name="LOC-THOMAS-HR1424">{{cite news | title= H.R.1424 | date= October 1, 2008 | publisher= Library of Congress | url= http://thomas.loc.gov/cgi-bin/bdquery/z?d110:HR1424: | work= THOMAS | access-date= October 1, 2008 | archive-date= September 23, 2008 | archive-url= https://web.archive.org/web/20080923232512/http://thomas.loc.gov/cgi-bin/bdquery/z?d110:hr1424: | url-status= dead }} (Access to legislative history of H.R. 1424)</ref> The tax part of the law has provisions that will have a net expenditure of $100 billion over 10 years. It had been stalled due to a disagreement between Democrats that did not want to increase spending without a corresponding increase in taxes and Republicans, who were adamantly opposed to any tax increases.

==Key items in the legislation==
On October 3, 2008, the Emergency Economic Stabilization Act became law with the signing of [[Public Law 110-343]], which included the act.<ref>{{cite news|title=Economic rescue swiftly signed into law |url=http://afp.google.com/article/ALeqM5h40yrrEcqeJEeVRgcrDXB7egDo2A |agency=AFP |date=October 3, 2008 |url-status=dead |archive-url=https://web.archive.org/web/20120429172133/http://afp.google.com/article/ALeqM5h40yrrEcqeJEeVRgcrDXB7egDo2A |archive-date=April 29, 2012 }}</ref> Below is a list of key items and how the legislation deals with them.

===Interest on bank deposits held by the Federal Reserve===
[[File:Graph composition proportions under dollars saved.png|thumb|right|Reserve balances began increasing at the beginning of September 2008, just after the [[2008 Democratic National Convention|Democratic]] and [[2008 Republican National Convention|Republican national convention]]s, and just before the [[bankruptcy of Lehman Brothers]] and the [[United States presidential election debates, 2008|presidential debates]].]]

Although the original bill proposed as late as September 20 contained no such provision,<ref name="plan0920nyt" /> Section 128 of the Act allowed the [[Federal Reserve System]] (the Fed) to begin paying banks a high [[interest rate]] on their deposits held for [[reserve requirement]]s. It reads:

{{center|'''Sec. 128. Acceleration of Effective Date.'''}}
:Section 203 of the [http://www.govtrack.us/congress/billtext.xpd?bill=s109-2856 Financial Services Regulatory Relief Act of 2006] ([https://www.law.cornell.edu/uscode/12/461.html 12 U.S.C. 461]) is amended by striking `October 1, 2011' and inserting `October 1, 2008'.

[[File:EESA128.png|thumb|right|Reserve balances with U.S. Federal Reserve Banks, 1995-2008 and 2008, in billions of U.S. dollars]]

The Fed announced that it would begin paying such increased interest on both reserve and [[Excess reserves|excess reserve]] balances on October 6, 2008.<ref>Federal Reserve Board of Governors (October 6, 2008) [http://www.federalreserve.gov/newsevents/press/monetary/20081006a.htm "Board announces that it will begin to pay interest on depository institutions required and excess reserve balance"] ''FRB press release''</ref> Banks immediately increased the amount of their money on deposit with the Fed, up from about $10 billion total at the end of August 2008, to $880 billion by the end of the second week of January 2009.<ref>Crescenzi, T. (December 22, 2008) [https://www.cnbc.com/2008/12/22/crescenzi-banks-sitting-on-1-trillion-cash.html "Crescenzi: Banks Sitting on $1 Trillion Cash"] ''CNBC''</ref><ref>Krell, E. (December 10, 2008) [http://businessfinancemag.com/blogpost/what-wrong-tarp-1210 "What Is Wrong With TARP?"] ''Business Finance''</ref> In comparison, the increase in reserve balances reached only $65 billion (~${{Format price|{{Inflation|index=US-GDP|value=65000000000|start_year=2001}}}} in {{Inflation/year|US-GDP}}) after September 11, 2001, before falling back to normal levels within a month. The U.S. Treasury Department explained the changes, saying:

<blockquote>The Federal Reserve will continue to take a leadership role with respect to liquidity in our markets. It is committed to using all of the tools at its disposal to provide the increased liquidity that is now required for the effective functioning of financial markets. In this regard, the authority to pay interest on reserves that was provided by EESA is essential, because it allows the Federal Reserve to expand its balance sheet as necessary to support financial stability while conducting a monetary policy that promotes the Federal Reserve's macroeconomic objectives of maximum employment and stable prices. The Federal Reserve and the Treasury Department are consulting with market participants on ways to provide additional support for term unsecured funding markets.<ref>U.S. Department of the Treasury (October 6, 2008) [https://web.archive.org/web/20081009022620/http://www.treas.gov/press/releases/hp1177.htm "Statement by the President's Working Group on Financial Markets"] ''Treasury Press Release''</ref></blockquote>

Reactions to the change were mixed, with banks generally approving of their new ability to earn high interest without risk on funds that they would otherwise need to use to extend credit in order to make a profit for their shareholders, while those involved in the [[commercial paper]] markets, the [[Primary sector of the economy|primary]] and [[Secondary sector of the economy|secondary sectors]] of the goods and services economy, [[shipping]], and others depending on the liquidity of credit from banks were more skeptical of the further pressure against credit availability in the midst of the ongoing [[Credit crunch|credit liquidity crisis]].<ref>Federal Reserve Board of Governors (December 3, 2008) [[Special:FilePath/FRB Docket No. 1334 Public Comments.pdf|FRB Docket No. R-1334 - Reg. D - Public Comments on Reserve Requirements of Depository Institutions"]]</ref><ref>Wilder, R. (December 10, 2008) [http://www.rgemonitor.com/financemarkets-monitor/254725/why_exactly_does_the_fed_pay_interest_on_reserves "Why exactly does the Fed pay interest on reserves?"] {{webarchive|url=https://web.archive.org/web/20090122154841/http://www.rgemonitor.com/financemarkets-monitor/254725/why_exactly_does_the_fed_pay_interest_on_reserves |date=January 22, 2009 }} ''RGE Monitor'' (Roubini Global Economics, LLC)</ref>

The day after the change was announced, on October 7, Fed Chairman [[Ben Bernanke]] expressed some confusion about it, saying, "We're not quite sure what we have to pay in order to get the market rate, which includes some credit risk, up to the target. We're going to experiment with this and try to find what the right spread is."<ref name=FedRaisesRate>Lanman, S. (October 22, 2008) [https://www.bloomberg.com/apps/news?pid=20601087&sid=aaJhKjPBWPXc&refer=worldwide "Fed Raises Rate It Pays on Banks' Reserve Balances (Update2)"] ''Bloomberg''</ref> The Fed adjusted the rate on October 22, after the initial rate they set October 6 failed to keep the benchmark U.S. overnight interest rate close to their policy target,<ref name=FedRaisesRate /><ref>Federal Reserve Board of Governors (October 22, 2008) [http://www.federalreserve.gov/newsevents/press/monetary/20081022a.htm "Federal Reserve announces it will alter the formula used to determine the interest rate paid to depository institutions on excess balances"] ''FRB Press Release''</ref> and again on November 5 for the same reason.<ref>Federal Reserve Board of Governors (November 5, 2008) [http://www.federalreserve.gov/newsevents/press/monetary/20081105a.htm "Board announces it will alter formulas used to determine interest rates paid to depository institutions on required reserve balances and excess reserve balances"] ''FRB Press Release''</ref> Beginning December 18, the Fed directly established interest rates paid on required reserve balances and [[Excess reserves|excess balances]] instead of specifying them with a formula based on the target [[Fed funds rate|federal funds rate]].<ref>Federal Reserve Board of Governors (December 16, 2008) [http://www.federalreserve.gov/newsevents/press/monetary/20081216d.htm "Federal Reserve issues technical note concerning the calculation of interest rates on required reserve balances and excess balances for the maintenance periods ending December 17, 2008-December 16, 2008"] ''FRB Press Release''</ref><ref>Federal Reserve Board of Governors (December 31, 2008) [http://www.federalreserve.gov/monetarypolicy/reqresbalances.htm "Interest on Required Reserve Balances and Excess Balances"]. Retrieved January 5, 2008.</ref><ref>Wilder, R. (January 7, 2009) [http://www.newsneconomics.com/2009/01/fomc-minutes-show-fed-is-trying-to.html "FOMC minutes show the Fed is trying to think outside the box"] {{Webarchive|url=https://web.archive.org/web/20090119214214/http://www.newsneconomics.com/2009/01/fomc-minutes-show-fed-is-trying-to.html |date=January 19, 2009 }} ''News N Economics'' (excerpts of the December 15–16, 2008 [[Federal Open Market Committee]] meeting [http://federalreserve.gov/monetarypolicy/fomcminutes20081216.htm minutes])</ref>

The government issued $400 billion of short-term debt intended to help replace the $1.8 trillion commercial paper market which was wiped out by the change,<ref>Bernanke, B. (November 19, 2008) [http://news.hereisthecity.com/news/business_news/8474.cntns "Federal Reserve Chairman Ben Bernanke's testimony to the House Financial Services Committee on the financial bailout package"] ''HereIsTheCity.com'' (Entrepreneur Ltd.)</ref> (exacerbated by [[money market]] funds' sudden refusal to support commercial paper as well) but the world economy began to [[Deflation|deflate]] as international shipping, dependent on commercial paper, slowed in some regions to a few percent of levels prior to the change.<ref>Bajaj, V. (November 20, 2008) [https://www.nytimes.com/2008/11/20/business/economy/20econ.html "Stocks Are Hurt by Latest Fear: Declining Prices"] ''The New York Times''</ref><ref>''The Independent'' (November 6, 2008) [https://web.archive.org/web/20081211014806/http://www.independent.co.uk/news/business/analysis-and-features/shipping-holed-beneath-the-waterline-995066.html "Shipping: Holed beneath the waterline"]</ref> The FDIC announced a new program on October 14, under which newly issued senior unsecured debt issued on or before June 30, 2009, would be fully protected in the event the issuing institution subsequently fails, or its holding company files for bankruptcy.<ref>Federal Deposit Insurance Corporation (October 14, 2008) [http://www.fdic.gov/news/news/press/2008/pr08100.html "FDIC Announces Plan to Free Up Bank Liquidity"] ''FDIC press release''</ref> The FDIC program is expected to cover about $1.4 (~${{Format price|{{Inflation|index=US-GDP|value=1400000000000|start_year=2009}}}} in {{Inflation/year|US-GDP}}) trillion of bank debt.<ref>Baker, J. (October 15, 2008) [https://archive.today/20120710092802/http://groups.yahoo.com/group/FundLaw/message/1200 "Government Actions to Support Markets"] ''FundLaw''</ref>

The [[Congressional Budget Office]] estimated that payment of interest on reserve balances would cost the American taxpayers about one tenth of the present 0.25% interest rate on $800 billion in deposits:

{| class="wikitable" style="margin:1em auto 1em auto;"
|+ Estimated budgetary effects<ref>Congressional Budget Office (May 18, 2006) [http://www.cbo.gov/doc.cfm?index=7219&type=0 "CBO Cost Estimate, Financial Services Regulatory Relief Act of 2006,"] Table 1</ref>
|-
! Year || 2006 || 2007 || 2008 || 2009 || 2010 || 2011 || 2012 || 2013 || 2014 || 2015 || 2016
|-
! Millions of dollars || 0 || -192 || -192 || -202 || -212 || -221 || -242 || -253 || -266 || -293 || -308
|-
| colspan="12" style="text-align:center;"|(Negative numbers represent expenditures; losses in revenue not included.)
|}

Those expenditures pale in comparison to the lost tax revenues worldwide resulting from decreasing economic activity due to damage to the short-term [[commercial paper]] and associated credit markets.

On January 7, 2009, the [[Federal Open Market Committee]] decided that, "the size of the balance sheet and level of excess reserves would need to be reduced."<ref>Irwin, N. (January 7, 2009) [https://www.washingtonpost.com/wp-dyn/content/article/2009/01/06/AR2009010601631.html "Fed Expects Weak Economy, Fears 'Prolonged Retraction'"] ''The Washington Post''</ref> On January 13, [[Ben Bernanke]] said, "In principle, the interest rate the Fed pays on bank reserves should set a floor on the overnight interest rate, as banks should be unwilling to lend reserves at a rate lower than they can receive from the Fed. In practice, the federal funds rate has fallen somewhat below the interest rate on reserves in recent months, reflecting the very high volume of excess reserves, the inexperience of banks with the new regime, and other factors. However, as excess reserves decline, financial conditions normalize, and banks adapt to the new regime, we expect the interest rate paid on reserves to become an effective instrument for controlling the federal funds rate."<ref>Bernanke, B. (January 13, 2009) [https://archive.today/20130123113752/http://www.forbes.com/economy/2009/01/13/bernanke-lse-speech-markets-economy-cx_pm_0113fulltext.html "The Crisis and the Policy Response"] (London School of Economics)</ref> The same day, ''Financial Week'' said Mr. Bernanke admitted that a huge increase in banks' excess reserves is stifling the Fed's monetary policy moves and its efforts to revive private sector lending.<ref>Quinn, M. (January 13, 2009) [http://www.financialweek.com/apps/pbcs.dll/article?AID=/20090113/REG/901139975/1036 "Bernanke admits Fed struggling to revive private lending"] ''FinancialWeek.com''</ref>

On January 15, [[Federal Reserve System|Chicago Fed]] president and Federal Open Market Committee member Charles Evans said, "once the economy recovers and financial conditions stabilize, the Fed will return to its traditional focus on the federal funds rate. It also will have to scale back the use of emergency lending programs and reduce the size of the balance sheet and level of excess reserves. 'Some of this scaling back will occur naturally as market conditions improve on account of how these programs have been designed. Still, financial market participants need to be prepared for the eventual dismantling of the facilities that have been put in place during the financial turmoil,' he said."<ref>Cooke, K. (January 15, 2008) [https://www.reuters.com/article/us-usa-fed-evans-idUSTRE50E6PS20090115 "Fed's Evans: U.S. in midst of serious recession"]. Reuters.</ref>

At the end of January 2009, excess reserve balances at the Fed stood at $793 billion<ref>Moyer, L. (February 3, 2009) [https://www.forbes.com/2009/02/03/banking-federal-reserve-business-wall-street-0203_loans.html "Banks Promise Loans but Hoard Cash"] ''Forbes''</ref> but less than two weeks later on February 11, total reserve balances had fallen to $603 billion. On April 1, reserve balances had again increased to $806 billion, and late November 2009, they stood at $1.16 trillion.<ref>Federal Reserve Bank of St. Louis (February 16, 2009) [http://research.stlouisfed.org/fred2/series/WRESBAL "Series: WRESBAL, Reserve Balances with Federal Reserve Banks"] ''FRED Economic Data System''</ref>

===Management of the Troubled Asset Relief Program===
The bill authorizes the [[United States Secretary of the Treasury|Secretary of the Treasury]] to establish the [[Troubled Assets Relief Program]] to purchase troubled assets from financial institutions. The Office of Financial Stability is created within the [[United States Department of the Treasury|Treasury Department]] as the agency through which the Secretary will run the program. The Secretary is required to consult with the [[Board of Governors of the Federal Reserve System]], the [[Federal Deposit Insurance Corporation]], the [[Office of the Comptroller of the Currency|Comptroller of the Currency]], the Director of the [[Office of Thrift Supervision]], and the [[United States Secretary of Housing and Urban Development|Secretary]] of [[United States Department of Housing and Urban Development|Housing and Urban Development]] when running the program.<ref>Hagenbaugh, Barbara. [https://www.usatoday.com/money/economy/2008-10-03-treasury-toxic-debt_N.htm "Treasury given significant leeway in creating plan to buy toxic debt"], ''[[USA Today]]'', October 3, 2008.</ref><ref>[https://web.archive.org/web/20081001214431/http://banking.senate.gov/public/_files/latestversionAYO08C32_xml.pdf Amendment to HR 1424], Division A, Section 101.</ref>

====Funding====
The bill authorizes $700 billion for the program. The Treasury Secretary has immediate access to the first $250 billion. Following that, an additional $100 billion can be authorized by the [[President of the United States|President]]. For the last $350 billion, the President must notify Congress of the intention to grant the additional funding to the Treasury; Congress then has 15 days to pass a resolution disallowing the authority. If Congress fails to pass a resolution opposing the funding within 15 days, or if the resolution passes, but is [[veto]]ed by the President, and Congress does not have enough votes to [[Veto override|override]] the veto, the Treasury will receive the final $350 billion (~${{Format price|{{Inflation|index=US-GDP|value=350000000000|start_year=2008}}}} in {{Inflation/year|US-GDP}}).<ref>Gosselin, Peter G. [https://www.latimes.com/archives/la-xpm-2008-sep-29-fi-assess29-story.html "Paulson will have no peer under bailout deal"], ''[[Los Angeles Times]]'', September 29, 2008.</ref><ref>[https://web.archive.org/web/20081001214431/http://banking.senate.gov/public/_files/latestversionAYO08C32_xml.pdf Amendment to HR 1424], Division A, Section 115.</ref>

====Government equity interests in participating firms====
The Treasury Secretary is required to obtain a [[warrant (finance)|financial warrant]] guaranteeing the right to purchase [[non-voting stock]] or, if the company is unable to issue a warrant, [[senior debt]] from any firm participating in the program. The Secretary is allowed to make a [[de minimis]] exception to the rule, but that exception may not exceed $100 million.<ref name="breakdown">[https://www.washingtonpost.com/wp-dyn/content/article/2008/09/28/AR2008092800900.html "Breakdown of the Final Bailout Bill"], [[The Washington Post]], September 28, 2008.</ref><ref>[https://web.archive.org/web/20081001214431/http://banking.senate.gov/public/_files/latestversionAYO08C32_xml.pdf Amendment to HR 1424], Division A, Section 113.</ref>

====Executive pay limits====
If the Treasury purchases assets directly from a company, and also receives a meaningful equity or debt position in that company, the company is not allowed to offer incentives that encourage "unnecessary and excessive risks" to its senior executives (that is, the top five executives).<ref>Dvorak, Phred and Lublin, Joann S. [https://www.wsj.com/articles/SB122325048182306117 "Bailout's Bid to Limit Executive Pay Will Be Tough to Realize"], [[The Wall Street Journal]], October 6, 2008.</ref> Also, the company is prohibited from making [[golden parachute]] payments to a senior executive. Both of these prohibitions expire when the Treasury no longer holds an equity or debt position in that company. The company also is given "[[clawback]]" permission; that is, the opportunity to recover senior executive bonus or incentive pay based on earnings, gains, or other data that proves to be inaccurate.<ref name="sonnenschein">[https://web.archive.org/web/20081209094043/http://www.sonnenschein.com/pubs/e-alerts/Congress_Passes_New_.html Congress Passes New Limits on Executive Compensation Paid by Troubled Financial Institutions], Sonnenschein Nath & Rosenthal LLP., October 3, 2008.</ref><ref name="section111">[https://web.archive.org/web/20081001214431/http://banking.senate.gov/public/_files/latestversionAYO08C32_xml.pdf  Amendment to HR 1424], Division A, Section 111.</ref>

If the Treasury purchases assets via auction, and that purchase exceeds $300 million, any new employment contract for a senior officer may not include a golden parachute provision in the case of involuntary termination, bankruptcy filing, [[insolvency]], or [[receivership]]. This prohibition only applies to future contracts; golden parachutes already in place will remain unaffected.<ref name="sonnenschein"/><ref name="section111"/>

In either scenario, no limits are placed on executive salary, and existing golden parachutes will not be altered.<ref>Abrams, Paul. [https://www.huffingtonpost.com/paul-abrams/weak-pathetic-executive-c_b_130166.html "Weak, Pathetic Executive Compensation Limitations"], [[Huffington Post]], September 29, 2008.</ref>

====Foreclosure avoidance and homeowner assistance====
For [[Mortgage loan|mortgages]] involved in assets purchased by the Treasury Department, the Treasury Secretary is required to (1) implement a plan that seeks to maximize assistance for homeowners, and (2) encourage the servicers of the underlying mortgages to take advantage of the HOPE for Homeowners Program of the National Housing Act or other available programs to minimize [[foreclosure]]s.<ref name="breakdown"/> Furthermore, the Secretary is allowed to use loan guarantees and [[credit enhancement]]s to encourage loan modifications to avert foreclosure.<ref>[https://web.archive.org/web/20081001214431/http://banking.senate.gov/public/_files/latestversionAYO08C32_xml.pdf Amendment to HR 1424], Division A, Section 109.</ref> The bill does not provide a mechanism to change the terms of a mortgage without the consent of any company holding a stake in that mortgage.<ref>Spangler, Todd. [http://www.freep.com/apps/pbcs.dll/article?AID=/20081001/NEWS07/81001087/1009 "Your questions answered on bailout bill"], ''[[Detroit Free Press]]'', October 1, 2008.  {{webarchive|url=https://web.archive.org/web/20130629101059/http://www.freep.com/apps/pbcs.dll/article?AID=%2F20081001%2FNEWS07%2F81001087%2F1009 |date=June 29, 2013 }}</ref> Section 110: Assistance to Homeowners of the Emergency Economic Stabilization Act of 2008 "requires federal entities that hold mortgages and mortgage-backed securities to develop plans to minimize foreclosures".<ref>[https://www.washingtonpost.com/wp-dyn/content/article/2008/09/28/AR2008092800900.html "Breakdown of the Final Bailout Bill"], ''The Washington Post'', September 8, 2008</ref>

This $24 billion (~${{Format price|{{Inflation|index=US-GDP|value=24000000000|start_year=2008}}}} in {{Inflation/year|US-GDP}}) [[toxic asset|asset detoxification]] plan was requested by [[Federal Deposit Insurance Corporation]] Chair [[Sheila Bair]],<ref>[https://www.latimes.com/archives/la-xpm-2008-nov-18-fi-bair18-story.html "FDIC chief in tune with Democrats"] November 18, 2008 ''Los Angeles Times''</ref> but the Treasury did not use the provision. "The primary purpose of the bill was to protect our financial system from collapse," Secretary [[Henry Paulson]] told the [[House Financial Services Committee]], "The rescue package was not intended to be an economic stimulus or an economic recovery package."<ref>{{cite news| url=https://www.nytimes.com/2008/11/19/business/economy/19bailout.html | work=The New York Times | title=Treasury Denounced Over Bailout | first=Edmund L. | last=Andrews | date=November 19, 2008 | access-date=May 1, 2010}}</ref>

====Judicial review====
The bill establishes that actions taken by the Treasury Secretary regarding this program are subject to [[judicial review]],<ref name="breakdown"/><ref>[https://web.archive.org/web/20081001214431/http://banking.senate.gov/public/_files/latestversionAYO08C32_xml.pdf   Amendment to HR 1424], Division A, Section 119.</ref> reversing the request for immunity made in the original Paulson proposal.<ref>Fitzgerald, Alison. [https://www.bloomberg.com/apps/news?pid=20601109&sid=a2PslgpVvrCI&refer=home "As 'Biggest Crisis' Hit, Congress Held Nose and Backed Bailout"], [[Bloomberg.com]], October 6, 2008.</ref>

====Oversight====
{{See also|Oversight of the Troubled Assets Relief Program}}

Several oversight mechanisms are established by the bill. Contractors were also used to help manage the TARP funds.<ref>Roth, Z. (January 12, 2009) [http://tpmmuckraker.talkingpointsmemo.com/2009/01/whos_running_tarp_you_might_not_wanna_know.php "Who's Running TARP? You Might Not Wanna Know"] ''TalkingPointsMemo.com''</ref><ref>Carey, C. (January 10, 2009) [https://web.archive.org/web/20090408080000/http://bailoutsleuth.com/2009/01/-the-treasury-departments-latest/ "Report on TARP spending raises new questions"] ''BailoutSleuth.com''</ref>

The Financial Stability Oversight Board is created to review and make recommendations regarding the Treasury's actions.<ref name="bailout101"/><ref>[https://web.archive.org/web/20081001214431/http://banking.senate.gov/public/_files/latestversionAYO08C32_xml.pdf Amendment to HR 1424], Division A, Section 104.</ref> The members of the board are:

* [[Chairman of the Federal Reserve|Chairman of the Board]] of the [[Federal Reserve System|Federal Reserve]]
* [[United States Secretary of the Treasury|Secretary]] of the [[United States Department of the Treasury|Treasury]]
* Director of the [[Federal Housing Finance Agency]]
* Chairman of the [[U.S. Securities and Exchange Commission|Securities and Exchange Commission]]
* [[United States Secretary of Housing and Urban Development|Secretary]] of the [[United States Department of Housing and Urban Development|Department of Housing and Urban Development]]

A Congressional Oversight Panel is created by the bill to review the state of the markets, current regulatory system, and the Treasury Department's management of the Troubled Asset Relief Program. The panel is required to report their findings to Congress every 30 days, counting from the first asset purchase made under the program. The panel must also submit a special report to Congress about regulatory reform on or before January 20, 2009.<ref name="bailout101"/><ref>[https://web.archive.org/web/20081001214431/http://banking.senate.gov/public/_files/latestversionAYO08C32_xml.pdf  Amendment to HR 1424], Division A, Section 125.</ref>

The panel consists of five outside experts appointed as follows:

* One member chosen by the [[Speaker of the United States House of Representatives|Speaker of the House]]
* One member chosen by the [[Party leaders of the United States House of Representatives|minority leader]] of the House
* One member chosen by the [[Party leaders of the United States Senate|majority leader]] of the Senate
* One member chosen by the [[Party leaders of the United States Senate|minority leader]] of the Senate
* One member chosen by the Speaker of the House and the majority leader of the Senate, following consultation with the minority leaders of Congress

The [[Comptroller General of the United States|Comptroller General]] (director of the [[Government Accountability Office]]) is required to monitor the performance of the program, and report findings to Congress every 60 days. The Comptroller General is also required to audit the program annually. The bill grants the Comptroller General access to all information, records, reports, data, etc. belonging to or in use by the program.<ref name="Sweet">Sweet, Lynn. [http://blogs.suntimes.com/sweet/2008/09/highlights_of_the_bailout_bill.html "Bailout bill 'Emergency Economic Stabilization Act of 2008' searchable summary"] {{Webarchive|url=https://web.archive.org/web/20081001054320/http://blogs.suntimes.com/sweet/2008/09/highlights_of_the_bailout_bill.html |date=October 1, 2008 }}, ''[[Chicago Sun-Times]]'', September 28, 2008.</ref><ref>[https://web.archive.org/web/20081001214431/http://banking.senate.gov/public/_files/latestversionAYO08C32_xml.pdf Amendment to HR 1424], Division A, Section 116.</ref>

The bill creates the Office of the Special Inspector General for the Troubled Asset Relief Program, appointed by the [[President of the United States|President]] and confirmed by the Senate. The Special Inspector General's purpose is to monitor, audit and investigate the activities of the Treasury in the administration of the program, and report findings to Congress every quarter.<ref name="Sweet"/><ref>[https://web.archive.org/web/20081001214431/http://banking.senate.gov/public/_files/latestversionAYO08C32_xml.pdf   Amendment to HR 1424], Division A, Section 121.</ref>

===FDIC insurance===
From the date of enactment of the bill (October 3, 2008) until December 31, 2009, the amount of [[deposit insurance]] provided by the [[Federal Deposit Insurance Corporation|FDIC]] is increased from $100,000 to $250,000.<ref name="bailout101">Sahadi, Jeanne. [https://money.cnn.com/2008/10/03/news/economy/house_bill_summary/?postversion=2008100412 "Bailout 101: What new law says"], [[CNNMoney.com]], October 4, 2008.</ref><ref>[https://web.archive.org/web/20081001214431/http://banking.senate.gov/public/_files/latestversionAYO08C32_xml.pdf   Amendment to HR 1424 Amendment to HR 1424], Division A, Section 136.</ref>

===Budget-related provisions===

Title II sets out guidelines for consultation and reporting between the Treasury Secretary, the Office of Management and Budget, and the Congressional Budget Office.

===Tax provisions===

The bill makes the following changes to tax law.

* Qualified financial institutions may count losses on [[FNMA]] and [[FHLMC]] preferred stock against ordinary income, rather than capital gain income.
* New limitations are added on deductibility of executive compensation by corporations participating in the bailout.
* The mortgage debt forgiveness provision of the [[Mortgage Forgiveness Debt Relief Act of 2007]] is extended by three years, so that it applies to debts forgiven through the year 2012.
* Extend the expiration date of the section 41 Research & Development Tax Credit from December 31, 2007, to December 31, 2009; also, increase the Alternative Simplified Credit percentage from 12% to 14%.

==Administration of the law==
[[CAMELS ratings]] are being used by the [[United States]] government to help it decide which banks to provide special help for and which to not as part of its capitalization program authorized by the Emergency Economic Stabilization Act of 2008.<ref name="NYT-Dash-2008-11-01">{{cite news | first=Eric | last= Dash | title= U.S. Said to Be Using Loose Rules in Bank Aid | date= November 1, 2008 | url = https://www.nytimes.com/2008/11/01/business/01bank.html | work = The New York Times | access-date = November 1, 2008}}</ref>

''The New York Times'' states: "The criteria being used to choose who gets money appears to be setting the stage for consolidation in the industry by favoring those most likely to survive" because the criteria appears to favor the financially best off banks and banks [[Too big to fail|too big to let fail]]. Some lawmakers are upset that the capitalization program will end up culling banks in their districts.<ref name="NYT-Dash-2008-11-01"/>

Known aspects of the capitalization program "suggest that the government may be loosely defining what constitutes healthy institutions. [... Banks] that have been profitable over the last year are the most likely to receive capital. Banks that have lost money over the last year, however, must pass additional tests. [...] They are also asking if a bank has enough capital and reserves to withstand severe losses to its construction loan portfolio, nonperforming loans and other troubled assets."<ref name="NYT-Dash-2008-11-01"/> Some banks received capital with the understanding the banks would try to find a merger partner. To receive capital under the program banks are also "required to provide a specific business plan for the next two or three years and explain how they plan to deploy the capital."<ref name="NYT-Dash-2008-11-01"/>

==Effects on national debt==
The United States annual budget deficit for fiscal year 2009 surpassed $1 trillion. The original Paulson proposal would lift the United States federal debt ceiling by $700 billion, to $11.3 trillion from $10.6 trillion.<ref>{{Cite web |title=Administration Is Seeking $700 Billion for Wall Street |url=http://www.nytimes.com/glogin?URI=http://www.nytimes.com/2008/09/21/business/21cong.html&OQ=_rQ3D1&OP=7ca13ea8Q2FQ24k8yQ24zQ60g2Q23Q60Q60lSQ24SbbqQ24bQ3EQ24STQ24yA2s(822Q24STgQ60(PQ3DQ20lJD |archive-url=https://web.archive.org/web/20081005143220/http://www.nytimes.com/glogin?URI=http://www.nytimes.com/2008/09/21/business/21cong.html&OQ=_rQ3D1&OP=7ca13ea8Q2FQ24k8yQ24zQ60g2Q23Q60Q60lSQ24SbbqQ24bQ3EQ24STQ24yA2s(822Q24STgQ60(PQ3DQ20lJD |url-status=dead |archive-date=2008-10-05 |access-date=2024-09-26 |website=NY Times}}</ref>

==Other information==
A review of investor presentations and conference calls by executives of some two dozen US-based banks by ''The New York Times'' found that "few [banks] cited lending as a priority. An overwhelming majority saw the bailout program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses, or invest for the future."<ref>McIntire, Mike. [https://www.nytimes.com/2009/01/18/business/18bank.html "Bailout Is a Windfall to Banks, if Not to Borrowers"]. ''The New York Times''. January 17, 2009.</ref>

==References==
{{Reflist|30em}}
{{refbegin}}
* {{cite news |author1=Erin Aigner |author2=Amanda Cox |author3=Farhana Hossain |author4=Archie Tse | title= The No Votes: Details on the Republican and Democratic representatives who voted against the $700 billion financial bailout plan | date= September 30, 2008 |  url = https://www.nytimes.com/interactive/2008/09/29/business/20080929-CONGRESS-VOTE-GRAPHIC.html | work = The New York Times | access-date = September 30, 2008 }} (List and U.S. map with districts of members of Congress voting "no".
* {{cite news | first1 = Joe | last1= Nocera | first2= Andrew Ross | last2=Sorkin |first3=Diana B. |last3=Henriques | author-link3=Diana B. Henriques |first4=Edmund L. |last4=Andrews | title= 36 Hours of Alarm and Action as Crisis Spiraled | date= October 1, 2008 | url = https://www.nytimes.com/2008/10/02/business/02crisis.html
| work = The New York Times | access-date = October 2, 2008 }} (Background on development of the Treasury proposal to Congress)
* [http://www.thrall.org/special/economy.html#Emergency_Economic_Stabilization_Act A Directory of Related U.S. Government Agency Statements, Actions, Documents, Videos, and News Concerning the Emergency Economic Stabilization Act of 2008 / TARP (Troubled Assets Relief Program)]
*[https://archive.today/20110805001826/http://i1.democracynow.org/2009/9/15/nomi_prins_obama_banking_too_much Nomi Prins: "Obama Banking Too Much on Banks"] - video report by ''[[Democracy Now!]]''
{{refend}}

==External links==
{{Wikisource}}
{{wikiquote}}
* [https://www.govinfo.gov/content/pkg/COMPS-8925/uslm/COMPS-8925.xml Emergency Economic Stabilization Act of 2008] as amended ([https://www.govinfo.gov/content/pkg/COMPS-8925/pdf/COMPS-8925.pdf PDF]/[https://www.govinfo.gov/app/details/COMPS-8925/ details]) in the [[United States Government Publishing Office|GPO]] [https://www.govinfo.gov/help/comps Statute Compilations collection]
* [https://www.govinfo.gov/link/plaw/110/public/343?link-type=pdf&.pdf Emergency Economic Stabilization Act of 2008] as enacted ([https://www.govinfo.gov/link/plaw/110/public/343?link-type=details details]) in the [[United States Statutes at Large|US Statutes at Large]]
* {{USBill|110|hr|1424}} on [[Congress.gov]]
* {{USBill|110|hr|3997}} on Congress.gov
* [https://www.nytimes.com/2008/09/21/business/21draftcnd.html Text of original Paulson proposal]
* [http://stimulus.org/ Stimulus.org], a complete guide to all economic recovery efforts from the [[Committee for a Responsible Federal Budget]]
* [https://georgewbush-whitehouse.archives.gov/infocus/economy/index.html Jobs and Economic Growth], a discussion of the proposal from the [https://georgewbush-whitehouse.archives.gov/index.html George W. Bush White House Archive]
* {{cite web |url=https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy |title=Money creation in the modern economy|last1=McLeay|first1=Michael |last2=  Radia |first2=Amar|last3=Thomas|first3=Ryland   |publisher=[[Bank of England]] |date=14 March 2014|access-date=19 April 2025}}

{{Federal Reserve System}}
{{Subprime mortgage crisis}}
{{Economic Crisis}}
{{Bank regulation in the United States}}
{{Presidency of George W. Bush}}
{{Authority control}}

[[Category:Acts of the 110th United States Congress]]
[[Category:2008 in American politics]]
[[Category:2008 in economic history]]
[[Category:Great Recession in the United States]]
[[Category:George W. Bush administration controversies]]
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