Emergency Economic Stabilization Act (EESA) of 2008

What Is the Emergency Economic Stabilization Act (EESA) of 2008?

The Emergency Economic Stabilization Act (EESA) was a law passed by Congress in 2008 in response to the subprime mortgage crisis. It authorized the Treasury secretary to buy up to $700 billion of troubled assets and restore liquidity in financial markets. The EESA was originally proposed by Henry Paulson.

Understanding the Emergency Economic Stabilization Act (EESA) of 2008

The House of Representatives rejected an initial EESA proposal in September 2008 but passed a revised bill the following month. Proponents believed that it was vital to minimize the economic damage created by the mortgage meltdown, while detractors condemned it as a bailout for Wall Street.

The EESA surfaced in response to the worst financial crisis since the 1930s, and paved the way for the establishment of the Troubled Assets Relief Program (TARP). Tasked with helping to stabilize the financial system, the TARP authorized the Treasury secretary to "purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the secretary."

The Troubled Assets Relief Program (TARP) was a pillar of the EESA.

The Treasury backed this broad mandate with $700 billion. The program aimed to "protect home values, college funds, retirement accounts, and life savings; preserve homeownership and promote jobs and economic growth; maximize overall returns to the taxpayers of the United States; and provide public accountability for the exercise of such authority."

The Effects of the Emergency Economic Stabilization Act (EESA) of 2008

The EESA is widely credited with restoring stability and liquidity to the financial sector, unfreezing the markets for credit and capital, and lowering borrowing costs for households and businesses. This, in turn, helped restore confidence in the financial system and restart economic growth.

Largely as a result of the takeover of insurance giant AIG, by 2017 the Congressional Budget Office (CBO) estimated that TARP transactions cost taxpayers a little more than $32 billion. The CBO said the federal government disbursed $313 billion, most of which was repaid by 2017. It estimated a net gain to the government of $9 billion from those transactions. That included a net gain of about $24 billion from assistance to banks and other lending institutions, partially offset by $15 billion of assistance for AIG.

Most of the money paid out under the EESA has since been repaid, and the Treasury has made a profit of more than $110 billion on its loans and investments.

In February 2021, the nonpartisan ProPublica reported that a total of $443 billion had been disbursed under TARP in the form of investments, loans, and payouts, of which $390 billion had been repaid to the Treasury. The Treasury had also earned $52.5 billion on those investments and loans. That, plus some additional revenue, had resulted in a profit, to date, of $110 billion for the Treasury.