The primary purpose of TARP, according to the Federal Reserve, was to stabilize the financial sector by purchasing illiquid assets from banks and other financial institutions. However, the effects of the TARP have been widely debated in large part because the purpose of the fund is not widely understood. 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. Further, an overwhelming majority saw the program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses or invest for the future." The article cited several bank chairmen as stating that they viewed the money as available for strategic acquisitions in the future rather than to increase lending to the private sector, whose ability to pay back the loans was suspect. PlainsCapital chairman Alan B. White saw the Bush administration's cash infusion as a "opportunity capital", noting, "They didn't tell me I had to do anything particular with it." Moreover, while TARP funds have been provided to bank holding companies, those holding companies have only used a fraction of such funds to recapitalize their bank subsidiaries.[67] Many analysts speculated TARP funds could be used by stronger banks to buy weaker ones.[68] On October 24, 2008, PNC Financial Services received $7.7 billion in TARP funds, then only hours later agreed to buy National City Corp. for $5.58 billion, an amount that was considered a bargain.[69] Despite ongoing speculation that more TARP funds could be used by large-but-weak banks to gobble up small banks, as of October 2009, no further such takeover had occurred. The Senate Congressional Oversight Panel created to oversee the TARP concluded on January 9, 2009: "In particular, the Panel sees no evidence that the U.S. Treasury has used TARP funds to support the housing market by avoiding preventable foreclosures". The panel also concluded that "Although half the money has not yet been received by the banks, hundreds of billions of dollars have been injected into the marketplace with no demonstrable effects on lending."[70] Government officials overseeing the bailout have acknowledged difficulties in tracking the money and in measuring the bailout's effectiveness.[71] During 2008, companies that received $295 billion in bailout money had spent $114 million on lobbying and campaign contributions.[72] Banks that received bailout money had compensated their top executives nearly $1.6 billion in 2007, including salaries, cash bonuses, stock options, and benefits including personal use of company jets and chauffeurs, home security, country club memberships, and professional money management.[73] The Obama administration has promised to set a $500,000 cap on executive pay at companies that receive bailout money,[74] directing banks to tie risk taken to workers' reward by paying anything further in deferred stock.[75] Graef Crystal, a former compensation consultant and author of "The Crystal Report on Executive Compensation," claimed that the limits on executive pay were "a joke" and that "they're just allowing companies to defer compensation."[76] In November 2011, a report showed that the sum of the government's guarantees increased to $7.77 trillion; however, loans to banks were only a small fraction of that amount.[77] One study found that the typical non-minority owned bank was about ten times more likely to receive TARP money in the CDCI program than a black owned bank after controlling for other factors. http://en.wikipedia.org/wiki/TARP#Similar_historical_federal_banking_programs

• published: 26 Sep 2013
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