Your monthly support provides voters the knowledge they need to make confident decisions at the polls. Donate today.
Emergency Economic Stabilization Act of 2008
This article does not receive scheduled updates. If you would like to help our coverage grow, consider donating to Ballotpedia. Contact our team to suggest an update.
 | |
| Financial regulation in the United States | |
| Dodd-Frank Act | |
| Federal Reserve | |
| Financial regulation by state | |
 | |
| Key terms | |
| Commercial bank • Credit union • Depository institution • Financial system • Investment banking • Securities | |
| Hover over the above terms for definitions. | |
The Emergency Economic Stabilization Act (EESA) was a financial regulation law adopted in 2008. According to the text of the bill, its purpose was to stabilize the economy in the wake of the 2008 recession and prevent economic disruption. The law granted the U.S. Department of the Treasury the authority to purchase up to $700 billion in troubled assets via the Troubled Asset Relief Program (TARP). Troubled assets were defined by the Congressional Budget Office as assets determined to be in danger of failing and whose purchase would promote financial stability. The act was sometimes referred to by critics as the bailout.[1][2]
Background
The financial crisis of 2008, sometimes referred to as the Great Recession, launched the United States and the global economy into what Investopedia called the most significant downturn since the Great Depression. Investopedia, an online financial encyclopedia, described the recession as follows:[3]
| “ | During the American housing boom of the mid-2000s, financial institutions began marketing mortgage-backed securities (MBSs) and sophisticated derivative products at unprecedented levels. When the real estate market collapsed in 2007, these securities declined precipitously in value, jeopardizing the solvency of over-leveraged banks and financial institutions in the U.S. and Europe.
Although the global economy was already feeling the grip of a credit crisis that had been unfolding since 2007, things came to a head a year later with the bankruptcy of Lehman Brothers, the country’s fourth-largest investment bank, in September 2008. The contagion quickly spread to other economies around the world, most notably in Europe. As a result of the Great Recession, the United States alone shed more than 7.5 million jobs, causing its unemployment rate to double. Further, American households lost roughly $16 trillion of net worth as a result of the stock market plunge.[4] |
” |
| —Investopedia | ||
There were competing theories about what led to the housing boom and bubble that spurred the 2008 recession. There was also debate about whether the repeal of the Glass-Steagall Act in 1999 contributed to the recession. In 2008, at the height of the crisis, U.S. gross domestic production growth slowed to 0.4 percent. The nation's unemployment rate rose to 10 percent in October 2009. This period of stagnant growth and high unemployment lasted from December 2007 to June 2009.[5][6][7]
Legislative history
The first version of the EESA, which was proposed by Treasury Secretary Henry Paulson, was rejected by the U.S. House of Representatives on September 29, 2008, by a 228-205 vote. On October 1, 2008, the U.S. Senate debated the bill and amended it. This bill was approved by a vote of 74-25. The revised bill returned to the House. On October 3, 2008, the House voted 263-171 to approve the amended bill. President George W. Bush (R) signed the bill into law the same day.[8][9]
Components
Troubled Asset Relief Program (TARP)
The EESA gave the Department of the Treasury authority to spend up to $700 billion to buy troubled assets from banks and other financial institutions at risk of closure. This amount was later reduced to $475 billion in 2010. As passed, the government was allowed to purchase new troubled assets until December 31, 2009. The act included a provision allowing the treasury secretary to extend the deadline to October 3, 2010, without requiring approval from Congress. On December 10, 2009, Treasury Secretary Timothy Geithner issued the extension. The act also included restrictions on executive pay for bankers, limiting executive bonuses for companies that had assets purchased as part of the TARP program.[10][11]
To administer the program, the act also created the Financial Stability Oversight Board and Congressional Oversight Panel. The board was tasked with reviewing and making recommendations regarding the treasury department's actions. The board was set to terminate 15 days after the sale of the last troubled asset purchased by the government. The members of the board were as follows:[12]
- Chairman of the Board of the Federal Reserve
- Secretary of the Treasury
- Director of the Federal Housing Finance Agency
- Chairman of the Securities and Exchange Commission
- Secretary of the Department of Housing and Urban Development
The Congressional Oversight Panel was tasked with reviewing the state of financial markets, the regulatory systems surrounding these markets, and the treasury department's management of TARP. In addition to this oversight, the comptroller general was required to monitor the performance of the program.[12]
Other provisions
The act modified the Homeownership and Opportunity for People Everywhere program and required the treasury department and federal agencies to modify government home loans to help families keep their homes. The act also raised the Federal Deposit Insurance Corporation's (FDIC) coverage limit from $100,000 to $250,000. Initially, this extension was set to end at the start of 2010, but the increase was later made permanent with the passage of the Dodd-Frank Act.[11]
Debate
According to proponents, the law was necessary to prevent the recession from worsening. President George W. Bush (R), who signed the legislation into law, said the following:[13]
| “ | I know some Americans have concerns about this legislation, especially about the government's role and the bill's cost. As a strong supporter of free enterprise, I believe government intervention should occur only when necessary. In this situation, action is clearly necessary. And ultimately, the cost -- ultimately, the cost to taxpayers will be far less than the initial outlay. See, the government will purchase troubled assets and once the market recovers, it is likely that many of the assets will go up in value. And over time, Americans should expect that much -- if not all -- of the tax dollars we invest will be paid back.[4] | ” |
| —President George W. Bush | ||
The Center on Budget and Policy Priorities said the following about the laws passed to address the recession:[14]
| “ | These unpopular responses had a larger combined impact on growth and jobs than the fiscal interventions. All told, the policy responses — the 2009 Recovery Act, financial interventions, Federal Reserve initiatives, auto rescue, and more — were a resounding success [...] Without it, we might have experienced something approaching Great Depression 2.0. Today, the economic expansion is more than six years old — longer than most expansions — and we’re approaching full employment. It’s been a long time coming, but it would have taken much longer without the timely, massive, and unprecedented responses of policymakers.[4] | ” |
| —Center on Budget and Policy Priorities | ||
However, critics claimed that legislation acted as a taxpayer-funded bailout of failing private financial firms. In October 2010, Senator Elizabeth Warren (D) said the following about the program's purchase of assets from American International Group (AIG):[15]
| “ | The rescue of AIG continues to have a poisonous effect on the marketplace. By providing a complete rescue that called for no shared sacrifice on the part of AIG and its creditors, the government fundamentally changed the rules of the game on Wall Street. As long as the biggest companies in America believe that you and I will bail them out, the worst effects of the AIG rescue will linger.[4] | ” |
| —Senator Elizabeth Warren | ||
Former Representative John Boehner (R), house minority leader at the time of the EESA's passage, voted in favor of the EESA but later opposed the implementation of TARP. Responding to President Barack Obama's request to grant the program the final $350 billion allocated to it by the EESA, Boehner wrote the following in January 2009:[16]
| “ | I remain disappointed about the way TARP has been managed and how its resources have been spent over the last several months. From the outset, the program has been implemented with too little transparency and in a manner inconsistent with the way it was presented to Congress last fall.[4] | ” |
| —Former Representative John Boehner | ||
Public polling
According to 2008 public polling, opinion about the TARP program was divided, with supporters arguing that the program was necessary to protect the national economy and critics arguing that the program acted as a bailout of private businesses at taxpayer expense. The table below details the results of public opinion polls about TARP.[17][18][19]
| Public polling about TARP, 2008 | |||||||
|---|---|---|---|---|---|---|---|
| Poll | Question | Support | Oppose | ||||
| Pew Research Center | "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?" | 57% | 30% | ||||
| Bloomberg | "Do you think 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?" | 31% | 55% | ||||
| USA Today/Gallup | "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?" | 22%* | 67%* | ||||
| ABC | "Do you approve or disapprove of the steps the Federal Reserve and the Treasury Department have taken to try to deal with the current situation involving the stock market and major financial institutions?" | 44% | 42% | ||||
| Source: ABC News Note: Fifty-six 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. | |||||||
See also
External links
Footnotes
- ↑ Government Publishing Office, "Emergency Economic Stabilization Act of 2008, Pub. L. No, 110–343, 122 STAT. 3765 (2008)," accessed December 31, 2016
- ↑ Politico, "Criticism of TARP persists," October 1, 2010
- ↑ Investopedia, "The Great Recession," accessed November 1, 2016
- ↑ 4.0 4.1 4.2 4.3 4.4 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
- ↑ Bureau of Labor Statistics, "The Recession of 2007–2009," February 2012
- ↑ The Atlantic, "It Wasn't Household Debt That Caused the Great Recession," May 21, 2014
- ↑ Heritage Foundation, "Government Policies Caused The Financial Crisis And Made the Recession Worse," accessed December 1, 2016
- ↑ United States Congress, "H.R.1424," accessed December 31, 2016
- ↑ Office of the Clerk, "Final Vote Results for Roll Call 681," accessed December 31, 2016
- ↑ U.S. Department of the Treasury, "TARP Programs," accessed November 12, 2016
- ↑ 11.0 11.1 The Washington Times, "Summary of the Emergency Economic Stabilization Act of 2008," accessed November 12, 2016
- ↑ 12.0 12.1 United States Senate, "Amendment to HR 1424," accessed January 5, 2017
- ↑ The White House: President George W. Bush, "President Bush Discusses Emergency Economic Stabilization Act of 2008," October 3, 2008
- ↑ Center on Budget and Policy Priorities, "The Financial Crisis: Lessons for the Next One," October 15, 2015
- ↑ The New York Times, "The Opinion Pages: Will TARP Turn to Gold?" October 1, 2010
- ↑ Speaker of the House, "GOP Leader: "I remain disappointed about the way TARP has been managed and how its resources have been spent over the last several months," January 11, 2009
- ↑ Pew Research Center, "57% of Public Favors Wall Street Bailout," September 23, 2008
- ↑ ABC News, "Views on the Bailout... um, Investment," November 8, 2008
- ↑ Gallup, "Americans Favor Congressional Action on Crisis," September 26, 2008
