# Why didn't the Fed make the emergency 2008 loans instead of Congress via TARP? **URL:** \ **Category:** Great Debates\ **Created:** [October 15, 2012, 9:52pm UTC](https://boards.straightdope.com/t/why-didnt-the-fed-make-the-emergency-2008-loans-instead-of-congress-via-tarp/637821 "2012-10-15T21:52:14Z")\ **Posts on this page:** 8\ **Page:** 1
**Author:** ![Linden\_Arden](https://avatars.discourse-cdn.com/v4/letter/l/53a042/32.png) [@Linden\_Arden](https://boards.straightdope.com/u/Linden_Arden)\ **Post date:** [October 15, 2012, 9:52pm UTC](https://boards.straightdope.com/t/why-didnt-the-fed-make-the-emergency-2008-loans-instead-of-congress-via-tarp/637821/1 "2012-10-15T21:52:14Z")
Let us use Citigroup as an example. Citi was loaned $45 billion from TARP in the form of preferred stock purchases by the Treasury. Did the Fed see Citi as too much risk? Why put Congress through the uncertainty and torment of passing TARP if the situation were so dire (as it was)? Did Citi lack collateral? (almost certainly they did). I am posting this in GD due to the subjective nature of opinion on this. ---
**Author:** ![Jas09](https://avatars.discourse-cdn.com/v4/letter/j/d07c76/32.png) [@Jas09](https://boards.straightdope.com/u/Jas09)\ **Post date:** [October 15, 2012, 9:55pm UTC](https://boards.straightdope.com/t/why-didnt-the-fed-make-the-emergency-2008-loans-instead-of-congress-via-tarp/637821/2 "2012-10-15T21:55:15Z")
I believe the short answer is: [they did](http://en.wikipedia.org/wiki/Federal_Reserve_responses_to_the_subprime_crisis). In late 2008 the Fed had up to $1 trillion in emergency loans outstanding. But in order to “put a bottom under” the fallout, Congressional action was seen as necessary. ---
**Author:** ![Jas09](https://avatars.discourse-cdn.com/v4/letter/j/d07c76/32.png) [@Jas09](https://boards.straightdope.com/u/Jas09)\ **Post date:** [October 15, 2012, 9:57pm UTC](https://boards.straightdope.com/t/why-didnt-the-fed-make-the-emergency-2008-loans-instead-of-congress-via-tarp/637821/3 "2012-10-15T21:57:27Z")
You specifically asked about Citi. The PDF linked to at the Wikipedia article (from the GAO) says that the Fed had a commitment to Citi to provide non-recourse loans if Citi had losses of greater than $56.2 billion. You can find the PDF here: [http://www.gao.gov/highlights/d11696high.pdf](http://www.gao.gov/highlights/d11696high.pdf) ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [October 15, 2012, 10:00pm UTC](https://boards.straightdope.com/t/why-didnt-the-fed-make-the-emergency-2008-loans-instead-of-congress-via-tarp/637821/4 "2012-10-15T22:00:39Z")
TARP wasn’t originally intended to make loans or equity investments with financial institutions. It was originally intended to purchase illiquid assets. After passing, it was essentially changed because they realized it would be too slow and too difficult to purchase the assets and they instead decided to copy the UK, which was just injecting capital into the banks. ---
**Author:** ![Linden\_Arden](https://avatars.discourse-cdn.com/v4/letter/l/53a042/32.png) [@Linden\_Arden](https://boards.straightdope.com/u/Linden_Arden)\ **Post date:** [October 15, 2012, 10:00pm UTC](https://boards.straightdope.com/t/why-didnt-the-fed-make-the-emergency-2008-loans-instead-of-congress-via-tarp/637821/5 "2012-10-15T22:00:46Z")
> [@Jas09](#): > > I believe the short answer is: [they did](http://en.wikipedia.org/wiki/Federal_Reserve_responses_to_the_subprime_crisis). In late 2008 the Fed had up to $1 trillion in emergency loans outstanding. Yes. The Fed also filled in the entire $2 trillion Commercial Paper market. > **[Commercial paper](https://en.wikipedia.org/wiki/Commercial_paper)** > > Empirical methods > Prescriptive and policy > Commercial paper, in the global financial market, is an unsecured promissory note with a fixed maturity of usually less than 270 days. In layperson terms, it is like an "IOU" but can be bought and sold because its buyers and sellers have some degree of confidence that it can be successfully redeemed later for cash, based on their assessment of the creditworthiness of the issuing company. But TARP failure was potentially fatal to the financial system according to Bernanke and the Fed waited. Now I am a Bernanke fan for sure. I just don’t quite understand his TARP posture. ---
**Author:** ![Linden\_Arden](https://avatars.discourse-cdn.com/v4/letter/l/53a042/32.png) [@Linden\_Arden](https://boards.straightdope.com/u/Linden_Arden)\ **Post date:** [October 15, 2012, 10:02pm UTC](https://boards.straightdope.com/t/why-didnt-the-fed-make-the-emergency-2008-loans-instead-of-congress-via-tarp/637821/6 "2012-10-15T22:02:29Z")
> [@LonghornDave](#): > > TARP wasn’t originally intended to make loans or equity investments with financial institutions. It was originally intended to purchase illiquid assets. After passing, it was essentially changed because they realized it would be too slow and too difficult to purchase the assets and they instead decided to copy the UK, which was just injecting capital into the banks. Yes, that is true. That would indicate Bernanke did not want low-grade assets on the Fed’s balance sheet. ---
**Author:** ![Jas09](https://avatars.discourse-cdn.com/v4/letter/j/d07c76/32.png) [@Jas09](https://boards.straightdope.com/u/Jas09)\ **Post date:** [October 15, 2012, 10:07pm UTC](https://boards.straightdope.com/t/why-didnt-the-fed-make-the-emergency-2008-loans-instead-of-congress-via-tarp/637821/7 "2012-10-15T22:07:19Z")
Well, wasn’t part of the problem that nobody really knew what any of the shit (to use a technical term) was worth? So how could you even figure out what to buy or for what price? I think that was a bigger problem than not wanting it on the books - even the banks themselves didn’t really know how much radioactive mortgage-backed debt they held. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [October 16, 2012, 6:53pm UTC](https://boards.straightdope.com/t/why-didnt-the-fed-make-the-emergency-2008-loans-instead-of-congress-via-tarp/637821/8 "2012-10-16T18:53:26Z")
Yeah. The Fed didn’t want the losses. While it doesn’t _really_ matter, it looks bad if the Fed is insolvent. (Balance sheet insolvent. Obviously the Fed can’t be cash flow insolvent.)