Good day to each of you reading the series on the Great Depression & the Great Recession.

We have just finished the tumultuous 2008 year with one failure after the next and yet we survived. I must re=phrase that we survived physically but financially, many of us watched our life savings crumble or even wiped out with no lifeline.

As 2009 begins, we pin our hopes on a new year and a year that would help each of us rebound financially.

Here is the timeline for 2009

This original source article written by Kimberly Amadeo and reviewed by Robert C. Kelly containing links to their sources can be found at by clicking here.

February 13 – Congress approved the $787 billion economic stimulus package. It boosted economic growth by granting $288 billion in tax cuts, $224 billion in unemployment benefits, and $275 billion for “shovel-ready” public works. It also included a $2,500 college tuition tax credit, an $8,000 tax credit for first-time homebuyers, and a deduction of sales tax on new car purchases.

The American Recovery and Reinvestment Act extended unemployment benefits and suspension of taxes on those benefits through 2009. It provided $54 billion in tax write-offs for small businesses. It was the fiscal stimulus that ended the Great Recession.

February 18 – Obama announced a $75 billion plan to help stop foreclosures. The Homeowner Affordability and Stability Plan was designed to help the 7 million to 9 million homeowners avoid foreclosure by restructuring or refinancing their mortgage before they got behind in their payments. Most banks wouldn’t allow a loan modification until the borrower missed three payments. HASP provided a $1,000-a-year principal payment for borrowers who stayed current on the loan. It was paid out of the Troubled Asset Relief Program funds.

February 27 – The Bureau of Economic Analysis’s final report revised its U.S. gross domestic product growth rate for the fourth quarter of 2008 to a negative 6.3%. That was worse than the 3.8% drop it reported in its advance report. It was also the worst slowdown since Q1 1982 when GDP fell 6.1%.

The recession caused demand to slump. Economic growth for all of 2008 was an anemic -0.1%.

March 5 – The Dow dropped to 6,594.44. It was a total decline of 53.4% from its peak close of 14,164.53 on October 9, 2007. That was worse than any other bear market since the Great Depression of 1929.

April – The Making Homes Affordable Program was launched to help homeowners avoid foreclosure. The Homeowner Affordable Refinance Program is one of its programs. It was designed to stimulate the housing market by allowing up to 2 million credit-worthy homeowners who were upside-down in their homes to refinance, taking advantage of lower mortgage rates.

The Obama administration introduced HARP in April 2009. By 2016, the program had helped more than 3.3 million people.

It is so interesting to read about government programs and their utilization of government stimulus packages. If this is a bailout, then who is paying the bill for the bailout?

The economic stimulus package under the direction of President Obama was designed to get consumers to put more dollars back into the economy thru spending and growing the weak economy. The plan was designed to assist the troubled financial industry and limit bonuses for senior executives in companies. Why the limit for bonuses? We will answer that question and look at the TARP or Troubled Asset Relief Program.

If you want more information on the AARA or American Recovery and Reinvestment Act, please look at this article for a breakdown on the act and the specifics and benefits of this act.

It is the opinion of many economic experts that the AARP Act ended the Great Recession and the economic troubles of 2007 and 2008.

Let’s go a bit further TARP or the Troubled Asset Relief Program– According to the Congressional Budget Office, TARP cost taxpayers over $32 billion.

This original source article written by Kimberly Amadeo and reviewed by Eric Estevez containing links to their sources can be found at by clicking here.

On October 3, 2008, President George W. Bush signed the $700 billion Emergency Economic Stabilization Act (EESA) of 2008 after Treasury Secretary Henry Paulson asked Congress to approve a bailout to buy mortgage-backed securities that were in danger of defaulting. By doing so, Paulson wanted to take these debts off the books of the banks, hedge funds, and pension funds that held them. His goal was to renew confidence in the functioning of the global banking system and end the financial crisis.

Troubled Assets Relief Program

The bill established the Troubled Assets Relief Program (TARP), which was originally designed around a reverse auction. Troubled banks would submit a bid price to sell their assets to TARP, and each auction was to be for a particular asset class. TARP administrators would select the lowest price for each asset class to ensure that the government didn’t pay too much for distressed assets. However, this didn’t happen because it took too long to develop the auction program.

On October 14, 2008, the Treasury Department used $105 billion in TARP funds to launch the Capital Purchase Program, which purchased preferred stock in the eight leading banks. By the time TARP expired on October 3, 2010, Treasury had used the funds in four other areas:

  • $67.8 billion to the $182 billion bailout of insurance giant American International Group (AIG)
  • $80.7 billion to bail out the Big Three auto companies
  • $20 billion to the Federal Reserve for the Term Asset-Backed Securities Loan Facility, which lent money to its member banks so they could continue offering credit to homeowners and businesses
  • $75 billion to help homeowners refinance or restructure their mortgages with the Homeowner Affordability and Stability Plan

When doing research on TARP or Troubled Asset Relief Program, the question arose as to limiting bonuses for senior executives in companies and here is some interesting information that I found:

The original source article containing links to their sources was posted by Ryan Stippich on June 17, 2009 and can be found here.

Treasury Issues New Rules on Executive Compensation for TARP Participants

Late last week, the Treasury department issued an interim final rule (somewhat of an oxymoron, but that is what it is called) entitled “TARP Standards for Compensation and Corporate Governance.” The Treasury Department was given this authority under the Emergency Economic Stabilization Act of 2008 passed last October in the deepest part of the crisis and amended by the American Recovery and Reinvestment Act of 2009, passed following the dust-up about retention bonuses provided to certain executives at AIG. The full text of the regulation is available here (beware, it is 123 pages). It supercedes the executive compensation interim rule issued after the EESA by incorporating the greater restrictions on executive comp in the Recovery Act.

The limits apply to those executives named in the company’s proxy statements as well as a certain number of “the most highly compensated employees” at each firm. The number of these employees that are subject to the regulations varies depending on how much financial support the firm has received under TARP. For example, for those institutions receiving over $500 million in assistance, the five senior executive officers and the 20 most highly compensated employees are covered.

First, the regulation provides guidance to executive compensation committees at the TARP recipient to comply with the requirements of the EESA that it structure compensation to limit unnecessary short-term risk taking by management. The committee must review, evaluate and report about the executive compensation of the named executives and highly compensated employes every six months. The report, which must be filed with the SEC, has to include “a narrative description of how [executive compensation] plans do not encourage [executives] to take unnecessary and excessive risks that threaten the value of the TARP recipient.”

Second, the regulation provides for the recovery of any bonus, retention awards or other incentive compensation paid based on materially inaccurate earnings, revenues, gains or other performance criteria that caused the bonus to be paid. The new rule requires that the TARP recipient actually exercise its clawback rights in such a case unless the TARP recipient can demonstrate that it would be unreasonable to do so (for example, if the expense of enforcing the clawback right exceeds the benefits of doing so). It is still unclear how this gets enforced if the government disagrees either (1) with the company’s decision that a bonus was not paid based on materially inaccurate information; or (2) does not exercise its clawback rights or determines it would be unreasonable to exercise them.

Third, it further curtails so-called “golden parachutes.” Aside from extending the restriction to a larger class of employees, the new rule also curtails payments made to executives leaving a company due to a change in control, such as an acquisition or merger with another company.

The rule also creates a “Special Master” to oversee executive compensation at firms receiving “exceptional assistance” under TARP. Currently, the group deemed to have received exceptional assistance includes AIG, Citigroup, Bank of America, Chrysler, GM, GMAC and Chrysler Financial. He will review compensation to named executives and the 100 most highly compensated individuals. These company’s must get compensation packages for these individuals approved by the Special Master, who may reject them if he deems them inconsistent with the goals of TARP. However, compensation will automatically be approved — a so-called safe harbor — if the compensation does not exceed $500,000.

Finally, the rule sets forth a number of requirements that were not explicitly included in the EESA or the Recovery Act. The rule prohibits the payment to senior executive officers and the 20 next most highly compensated employees of a tax “gross-up,” or a payment to cover taxes due on compensation such as golden parachutes and perquisites. TARP recipients will be required to disclose any perquisites provided to any employee subject to the Recovery Act’s bonus limitations with total value exceeding $25,000. TARP recipients will also be required to provide a nar rative description of, and justification for, the benefit. The rule also requires financial institutions to disclose the use of compensation consultants and the methodology used by the consultant, such as “benchmarking” procedures in the consultants analysis.

As I read the above article, I am following up with more information for you to ponder:

The original source article containing links to their sources was posted by Ryan Stippich on March 15, 2010 and can be found here.

March 15, 2010 The Heightened Risk Of Doing Business With The Government

One risk for directors and officers of banks or other financial institutions in taking money and support from the Federal Government is the potential increase in exposure for criminal liability for statements made in applications for TARP money or other assistance. If the financial institution that receives money later fails, there will be heightened scrutiny of that institution’s paperwork. The result could be allegations that any inaccuracies in those papers, with the benefit of hindsight, were recklessly or intentionally made.

A potential example of this was reported today by Marketwatch (here), where the CEO of Park Avenue Bank, which was closed by bank regulators on Friday, was arrested for allegedly making false statements on a TARP application, among other charges.

September 17, 2009 So Far Treasury Is Making Money On Investments In Banks

Beginning back in June, some of the larger banks began buying back the Treasury Department’s preferred securities the Government purchased as part of the TARP Capital Purchase Program. You remember TARP (Troubled Asset Relief Program), right? It was passed as part of the Emergency Economic Stability Act (EESA) at the height of the credit crisis almost one year ago in the days following the collapse of Lehman Brothers, AIG and Bear Stearns. There was no shortage of debate or controversy at the time either. Many saw the $700 billion TARP program as a give-away to the Wall Street businesses that people thought got us into this mess. Others saw it as vital to preventing another Great Depression, and worth risking the “moral hazard” dilemma. Besides, those in support of the plan argued, if the banks survive, then the government might get paid back most of its $700 billion anyhow.

Although it may be too early to count TARP as a worthy gamble, it is interesting that, at least so far, the American Taxpayer has actually made money on the Government’s investment in the nation’s banks. Every few days, the Treasury Department releases a completed transactions report (latest one available here), that shows where the TARP money has gone, as well as the money that has been paid back. So far, 41 financial institutions have repaid the principal invested by the government. However, most also bought back the warrants issued as part of the purchase of preferred stock by the government. In doing so, the government has made about $2.89 billion on its investment, not including interest payments that were made during the time that the government was a preferred shareholder. About $70.5 billion of the total $200 billion invested in financial institutions has been paid back, with Citigroup indicating yesterday that it might be prepared to raise sufficient capital to buy out $20 billion of Uncle Sam’s $45 billion investment in that company as well (article here). If the Treasury Department can make a similar return on investment on the remaining $130 billion investment in America’s financial institutions, I think most taxpayers would be quite pleased indeed. Somewhere, Hank Paulson is smiling.

January 21, 2009 Like Citi Before It, Bank Of America Gets Second Bailout

Late last week in a joint announcement by Treasury, Federal Reserve and the FDIC, it was revealed that Bank of America would receive another round of bailout money. The structure of the new bailout is virtually identical to that received by Citigroup last November (my prior post on Citi is here). $90 billion of the $191 billion spent in the Capital Purchase Program has been invested in these two banks.

Treasury will buy an additional $20 billion in preferred stock under the terms of the Capital Purchase Program on top of the $25 billion already invested in Bank of America. Also, as with Citi, the Federal Reserve will enter a guarantee against losses of more than $10 billion on a $118 billion pool of asset backed securities held by Bank of America. The term sheets are available here and here.

Like Citi, Bank of America was likely too big to fail, particularly after the government had already invested $25 billion. Thus this new round of financing was provided under what has become known as the Targeted Investment Program, which to be eligible the Treasury must determine the institution “is sufficiently important to the nation’s financial and economic system that a loss of confidence in the firm’s financial position could potentially cause major disruptions to credit markets or payments and settlement systems, destabilize asset prices, significantly increase uncertainty, or lead to similar losses of confidence or financial market stability that could materially weaken overall economic performance.”

Meanwhile, even with the trillions of dollars poured into the financial system, turmoil in the financial markets continues. All financial stocks were pummelled yesterday after State Street announced bad financial results and disclosed a number of new risks and potential problems with its capital ratios. Congress and the Obama administration are also considering establishing a federal “bad bank” that would do what TARP originally was supposed to do, take toxic assets off of bank balance sheets. Some are estimating that the cost of this program could reach $2 to $3 trillion (or more) in additional federal government outlays.

November 24, 2008 A Second Bailout For Citigroup

This morning the U.S. Treasury Department and Citigroup announced a new bailout for Citigroup, including a guarantee against losses on mortgage backed assets and an additional $20 billion equity investment by the government (on top of the $25 billion in preferred stock already purchased by the government). Treasury’s joint statement with the FDIC and the Federal Reserve is available here, and the Citi press release is available here.

The deal between the government and Citi involves a number of facets. The first aspect is similar to the original purpose of the TARP program — the government will guarantee “against the possibility of unusually large losses” (as characterized by the Treasury statement) on a $306 billion pool of mortgage backed assets (loan and securities) held by Citi. The assets will remain on Citi’s balance sheet, and Citi will retain any income streams from the assets.

The term sheet posted on Citi’s website states that Citi will be responsible for the first $29 billion in losses (in addition to any existing reserves on Citi’s balance sheet) on the portfolio on a pre-tax basis. After that, losses will be allocated 90% to the government and 10% to Citi. The first $5 billion in losses assumed by the government will come from TARP funds. The second $10 billion comes from the FDIC funds. Any additional losses will be borne by the Federal Reserve through a “non-recourse loan.” The government will provide the guarantee for 10 years for residential mortgage-backed assets and 5 years for commercial assets.

As a “fee” for the guarantee against losses on these assets, Citi will issue $7 billion in preferred stock to the government. Citi will also issue warrants to purchase 254 million shares of common stock at a strike price of $10.61. Citi also cannot issue dividends on common shares exceeding one cent for three years.

Another component of the deal is the Treasury’s purchase of $20 billion in additional preferred stock, subject to the same terms and conditions of its original $25 billion as part of the Capital Purchase Program. This $20 billion will come from TARP funds allocated pursuant to the EESA.

In an earlier post about the Capital Purchase Program (here), this blog noted that the government would have a natural inclination to provide further support to financial institutions in which it has already invested. Whether this is a sign of that phenomenon remains to be seen. In this instance, the reason for the additional support for Citi was likely because of the sheer size and importance of Citi in the financial markets. Given how the Lehman bankruptcy froze the credit markets and ground financing to a halt, the government could not afford a further deterioration (of at least the perception — Citi appears to have been well-capitalized at all times) of Citi’s financial condition.

The internet, in many ways, has leveled the playing field with the amount of information coming from various sources. Yes, their may be two sides of the story, but when one follows the money trail, it is the big corporation who come out “smelling like a rose” due to their poor decisions.

It is the American taxpayer who suffers the consequences from both the federal government, the federal reserve, banks and large corporations. Where is the accountability in the above articles?

The Great Recession was to be a lesson learned or so one hoped, but I don’t believe that has happened. I could include so much more information on 2009, the bailouts of major banks and the bailouts of the “big three” automakers in times that ensued, but I do hope you see a troubling economic pattern that began back nearly 100 years ago.
I read a very informative article from “The Philadelphia Trumpet” dated July 2021—What does Free Money Cost? By Robert Morley.

As I close this column, here is some sobering numbers for you to ponder”

Mr. Morley says. “Even during the best years of the last two presidential administrations, not once did the government run a budget surplus. It took in record amounts of revenue through taxes, yet spent even more. The national debt took more than 200 years to reach $1 trillion. It took only 26 more years to rise to $10 trillion in 2008, and only 12 years to exceed $27 trillion. Our national debt is now greater than the sum of all goods and services All AMERICANS produce in an entire year.

“Two Years, we will be at $40 trillion in debt, and in two years after that, if we continue this stimulus we are going to be at $50 trillion” said Jim Puplava at Financial Sense Wealth Management. “At some [point] these debt levels are unsustainable.”

In the next column, we will fast forward to 2021 and begin answering questions like:

  • Why not print more money?
  • What about inflation?
  • Will our next step be recession?
  • Will the Federal reserve increase their rates?
  • What are the factors of the depression and are we headed to the depression?
  • Biblical Lessons on the depression.
  • What does the Bible say about debt?

Again, I wish to thank each of you reading the columns—I am sure you may not agree with everything said, but this will make you think or even prepare for what lies ahead.
History does repeat itself and the Bible has given each of us individually and collectively as a nation various examples of how to reap the blessings or receive the curses.

This is your choice and that is why I like to utilize Deuteronomy 28

68 verses to provide insight for individuals and for nations on how to receive the blessings for obedience or the curses for disobedience.

Yes, the Bible uses Israel in Deuteronomy 28 as a reference, but replace the word “Israel” with the United States of America and look at all the similarities.

May you Bless God in all that you say and do!


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