Question

What are the pros and cons of TARP money? What were the advantages and disadvantages of its use and was it helpful in the 2008 Merril Lynch/ Bank of America incident?

Answer 1

The original plan was to encourage the new lending by purchasing up to the $700 billion of troubled assets, and also to rehabilitate the assets for the resale back on secondary market.

The pros ans cons of TARP money is-

Cons: The banks didn't learn their lesson and are making same mistakes with the Student Loans. The bailout is helped to grow the income inequality we are currently facing, the full depression would have allowed the many Americans the ability to level playing field and start from the scratch after the worst of it was over. The Several financial firms went beyond the mere negligence and they should have been criminally charged, creating view of a legal double standard between the rich and poor people.

Pros: We avoided the Great Depression, that would have effected all of the society, and hit the poor people especially bad . A depression of magnitude we are talking would have also destabilized global economy, leading to the political instability in the world at large, and the possibly leading to World War.

Advantages are:

It will restore liquidity-The credit crisis has been a crisis of liquidity. In simple terms, banks have hoarded their cash, and borrowers – from home owners to large businesses – have not be able to access money.

It will avert another major bank collapse.

It may not end up being as costly as feared

It draws a line in the sand.

Disadvantages are:

It is hugely expensive

The US could become reliant on China

The deal is nationalisation on a grand scale.

There is no guarantee that this plan will work