What is the 2008 Emergency Economic Stabilization Law (EESA)?
The Emergency Economic Stabilization Act (EESA) is a law passed by Congress in 2008 in response to the subprime mortgage crisis. It authorized the Secretary of the Treasury to buy up to $ 700 billion of troubled assets and restore liquidity in financial markets. The EESA was originally proposed by Henry Paulson.
- The Emergency Economic Stabilization Act (EESA) was one of the rescue measures adopted by Congress in 2008 to help repair the damage caused by the financial crisis of 2007-2008.
- EESA authorized the Treasury to buy up to $ 700 billion in distressed assets, a figure that was later reduced to $ 475 billion.
- Proponents believed that EESA was necessary to prevent the collapse of the financial system, while detractors called it a bailout for Wall Street and the banks.
Understanding the Emergency Economic Stabilization Act (EESA) of 2008
The House of Representatives rejected an initial proposal from EESA in September 2008, but passed a revised bill the following month. Proponents believed it was vital to minimize the economic damage created by the mortgage collapse, while detractors condemned it as a bailout for Wall Street.
The EESA emerged in response to the worst financial crisis since the 1930s and paved the way for the establishment of the Troubled Asset Relief Program (TARP). In charge of helping to stabilize the financial system, TARP authorized the Secretary of the Treasury to “buy and make and finance commitments to purchase distressed assets from any financial institution, under the terms and conditions determined by the secretary.”
The Troubled Asset Relief Program (TARP) was a pillar of EESA.
The Treasury backed this broad mandate with $ 700 billion. The program aimed to “protect home values, college funds, retirement accounts, and lifetime savings; preserve home ownership and promote employment and economic growth; maximize overall returns for individuals. United States taxpayers; and provide public accountability for the exercise of such authority. ” “
The effects of the 2008 Emergency Economic Stabilization Law (EESA)
EESA is widely credited with restoring financial sector stability and liquidity, unfreezing credit and capital markets, and lowering borrowing costs for households and businesses. This, in turn, helped restore confidence in the financial system and restart economic growth.
Largely as a result of the acquisition of insurance giant AIG, for 2017 the Congressional Budget Office (CBO) estimated that TARP transactions cost taxpayers just over $ 32 billion. The CBO said the federal government disbursed $ 313 billion, most of which was repaid in 2017. It calculated a net gain to the government of $ 9 billion from those transactions. That included a net gain of about $ 24 billion from assistance to banks and other lending institutions, partially offset by $ 15 billion of aid to AIG.
Most of the money paid under the EESA has since been repaid, and the Treasury has made a profit of more than $ 110 billion on its loans and investments.
In February 2021, nonpartisan ProPublica reported that a total of $ 443 billion had been disbursed under TARP in the form of investments, loans and payments, of which $ 390 billion had been repaid to the Treasury. The Treasury had also made $ 52.5 billion on those investments and loans. That, plus some additional revenue, had resulted in a profit, to date, of $ 110 billion for the Treasury.