Emergency Economic Stabilization Act and Recent Financial Turmoil: Issues and Analysis (January 23, 2009)

摘要

The current financial instability became widely apparent in the credit markets in August 2007. Although initially thought to be limited to subprime mortgages, increasing defaults on prime mortgages caused losses that rippled through the financial system; the effects have been particularly severe because U.S. mortgage-backed securities (MBS) had previously been viewed as low risk investments. Beginning in early 2008, multiple failures in large financial institutions prompted case-by-case government interventions to address these failures. Dissatisfaction with these ad hoc responses was cited by the Treasury in proposing a broader response focusing on government purchase of troubled mortgage-related assets, hoping to stem uncertainty and fear by removing these assets from the financial system. In early October 2008, Congress passed, and the President signed, the Emergency Economic Stabilization Act of 2008 (EESA, Division A of H.R. 1424/P.L. 110-343), creating the Troubled Assets Relief Program (TARP). In the 111th Congress, the TARP Reform and Accountability Act of 2009 (H.R. 384) would enact significant changes. EESA allows Treasury to buy up to $700 billion in troubled assets from financial institutions. The scope of the program depends in part on the definition of troubled assets. The original three-page proposal defined trouble assets as mortgage-related assets, both residential and commercial.