Too Big to Fail: The Bank Bail out

The Emergency Economic Stabilization Act of 2008, also known as the "bank bailout of 2008" or the "Wall Street bailout", was a United States federal law enacted during the Banking Crisis of 2008. which created federal programs to "bail out" failing financial institutions and banks. It created the $700 billion Troubled Asset Relief Program (TARP), which utilized congressionally appropriated taxpayer funds to purchase toxic assets from failing banks. The funds were mostly redirected to inject capital into banks and other financial institutions while the Treasury continued to examine the usefulness of targeted asset purchases. Nearly 1,000 companies received bailout funds through the Troubled Assets Relief Program (TARP). Some of the biggest bank bailout recipients included Bank of America, Citigroup, JPMorgan Chase and Wells Fargo. Other businesses like General Motors and Chrysler also received funds through TARP. 

A financial crisis had developed throughout 2007 and 2008 partly due to a subprime mortgage crisis, causing the failure or near-failure of major financial institutions like Lehman Brothers and American International Group. Seeking to prevent the collapse of the financial system, Secretary of the Treasury Paulson called for the U.S. government to purchase several hundred billion dollars in distressed assets from financial institutions. His proposal was initially rejected by Congress, but the ongoing financial crisis and lobbying by President Bush ultimately convinced Congress to enact the proposal as part of Public Law

Early estimates for the bailout's risk cost were as much as $700 billion; however, TARP recovered $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit (an annualized rate of return of 0.6%), which may have been a loss when adjusted for inflation.

Obama in a new interview with the New York Times’ Ezra Klein.

“When we came into office, the economy was in a free fall,” the former president said. “We had to scramble and do a bunch of stuff, some of which was inherited, some of which we initiated to stabilize the financial system. People hated it. It’s hard to just underscore how much the bank bailouts just angered everyone, including me.”


Although most economists agree the bailout was necessary and in the long run most of the money was repaid to the treasury, the electorate blamed the Obama administration and the Democratic Congress for the resulting debt and sense that the banks were not punished or properly reformed. This was the beginning of a backlash against the 'Washington elites' and globalisation. The Tea Party was formed in early 2009 with large-scale financial support from the billionaire Koch brothers, Charles and David. In January 2010, Massachusetts held a special election for the late Ted Kennedy’s Senate seat, just after Wall Street paid extravagant bonuses, and elected the Republican Scott Brown. The Republicans subsequently took control of the House of Representatives in the 2010 midterm elections, gained control of the Senate in 2014, and nominated Donald Trump, who was elected in 2016.