Emergency Economic Stabilization Act of 2008

The bill was proposed by Treasury Secretary Henry Paulson, passed by the 110th United States Congress, and was signed into law by President George W. Bush.

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.

The legislation had its origin in early 2008 when Secretary of the Treasury Henry Paulson directed two of his aides, Neel Kashkari and Phillip Swagel, to write a plan to recapitalize the U.S. financial system in case of total collapse.

The plan, which was also presented to Federal Reserve Chairman Ben Bernanke, called for the U.S. government to purchase about $500 billion in distressed assets from financial institutions.

This model was closely followed by the rest of Europe, as well as the U.S government, who on October 14 announced a $250bn (£143bn) Capital Purchase Program to buy stakes in a wide variety of banks in an effort to restore confidence in the sector.

[29][30][31] Throughout the week of September 20, 2008, there was contentious wrangling among members of Congress over the terms and scope of the bailout,[32] amplified by continued failures of institutions like Washington Mutual, and the upcoming November 4 national election.

As such, the initial outflow of government funds to purchase the MBS would be offset by ongoing cash inflows represented by the monthly mortgage payments.

[39][40] A key challenge would be valuing the purchase price of the MBS, which is a complex exercise subject to a multitude of variables related to the housing market and the credit quality of the underlying mortgages.

He mentioned that the U.S. Treasury and Federal Reserve wanted to help fund private investors to buy toxic assets from banks, but few details have yet been released.

"The lack of confidence inspired by Lehman's demise, the general poor health of many banks, this is going to turn this into an intractable moment," Cramer said, "if someone in the government doesn't start pushing for more deposit insurance.

Many members of Congress, including the House of Representatives, did not support the plan initially, mainly conservative free-market Republicans and liberal anti-corporate Democrats.

Traders who got "caught" at the end of the October contract session were forced to purchase oil in large batches to cover themselves, adding to the surge in prices.

[66][67] Other grassroots groups have planned rallies to protest against the bailout,[68] while outraged citizens continue to express their opposition online through blogs and dedicated web sites.

[83] Barack Obama, the Democratic presidential candidate, said that any bailout had to include plans to recover the money, protect working families and big financial institutions, and be crafted to prevent such a crisis from happening again.

[118] In an early morning news conference, on Monday September 29, President George W. Bush expressed confidence that the bill would pass Congress, and that it would provide relief to the U.S. economy.

[129] Markets, which had expected the bill to pass and had moved on to debating whether it would be sufficient, were already skittish after news that Wachovia Bank was being bought out by Citigroup to avoid collapse.

[128] Later in October, after the bill had been passed, the Dow Jones Industrial Average would drop by more in percentage terms, and market volatility remained at historically high levels, as measured by the VIX.

[11][17] President Bush signed the bill into law within hours of its enactment, creating a $700 billion dollar Treasury fund to purchase failing bank assets.

[140][141] The day after the change was announced, on October 7, Fed Chairman Ben Bernanke expressed some confusion about it, saying, "We're not quite sure what we have to pay in order to get the market rate, which includes some credit risk, up to the target.

On January 7, 2009, the Federal Open Market Committee decided that, "the size of the balance sheet and level of excess reserves would need to be reduced.

"[155] The same day, Financial Week said Mr. Bernanke admitted that a huge increase in banks' excess reserves is stifling the Fed's monetary policy moves and its efforts to revive private sector lending.

The company also is given "clawback" permission; that is, the opportunity to recover senior executive bonus or incentive pay based on earnings, gains, or other data that proves to be inaccurate.

[171] Section 110: Assistance to Homeowners of the Emergency Economic Stabilization Act of 2008 "requires federal entities that hold mortgages and mortgage-backed securities to develop plans to minimize foreclosures".

"[174] The bill establishes that actions taken by the Treasury Secretary regarding this program are subject to judicial review,[164][175] reversing the request for immunity made in the original Paulson proposal.

[179][180] The members of the board are: A Congressional Oversight Panel is created by the bill to review the state of the markets, current regulatory system, and the Treasury Department's management of the Troubled Asset Relief Program.

[179][181] The panel consists of five outside experts appointed as follows: The Comptroller General (director of the Government Accountability Office) is required to monitor the performance of the program, and report findings to Congress every 60 days.

[182][183] The bill creates the Office of the Special Inspector General for the Troubled Asset Relief Program, appointed by the President and confirmed by the Senate.

The Special Inspector General's purpose is to monitor, audit and investigate the activities of the Treasury in the administration of the program, and report findings to Congress every quarter.

CAMELS ratings are being used by the United States government to help it decide which banks to provide special help for and which to not as part of its capitalization program authorized by the Emergency Economic Stabilization Act of 2008.

An overwhelming majority saw the bailout program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses, or invest for the future.