NorCalSavant

By a vote of 52 to 42, the Senate agreed to give the Obama administration Tranche 2 of the Troubled Assets Relief Program (TARP) worth $350 billion. The vote was rather close and crucial. There was widespread popular opposition to giving Treasury any more money after it was widely perceived to have bungled the first $350 billion appropriated to it by the Congress.

Obama personally lobbied senators to release the money. He promised to focus this time around on helping the homeowners and the credit market. In a letter to the Senators, Larry Summers, his top economic adviser promised to spend fifty to one hundred billion dollars on foreclosure relief. He also promised to maintain strict oversight on the TARP disbursements, and to force firms receiving the money to actually increase lending and limit executive compensation.

He also promised to take Congress into confidence on any new major commitment of funds. He said the Treasury would quickly disclose the details of stock or asset purchase agreements with the financial firms. Paulson’s team had delayed disclosing that information, agreeing finally to do so under the threat of a subpoena. To allay Republican concerns, he promised not to use TARP 2 money to bolster other industries like was done with the auto industry.

There would be no need for the House to act on its approval now because the release of TARP Tranche 2 could only be stopped if both the House and the Senate had voted against it. The House will now focus on Obama’s economic stimulus plan.

It appears that good sense has prevailed in that the incoming Obama administration has agreed to some common sense conditions on the use of TARP funds.

Impact on Personal Finance

How will TARP/TARP 2 impact the pocketbooks and the personal finances of individual American consumers? First off, if the incoming Treasury Secretary comes out quickly with an effective program for foreclosure relief, it will help the insolvent and the solvent homeowners.

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Those caught up in the untenable mortgage situation and facing foreclosure would get an opportunity to stay in the house and defer losses to the future.  The solvent homeowners would see their house prices stabilize and rise sooner because the supply of houses for sale would go down.  With that the housing construction industry would also begin to look up which would be a great help in mitigating recession.

If the Treasury is able to force fund recipients to actually lend more, it will help loosen the credit squeeze. Consumers would be able to get credit easier and cheaper – a plus for the economy over all as well.

The other measures promised by Larry Summers relating to the management and oversight of TARP funds should help raise public confidence in the effectiveness of TARP. This could help with consumer confidence and thus with recession, which would be good for all consumers at large. Of course, consumer confidence is a complex negotiation of perception and outlook on many fronts. Whether and when other positive real and perceived factors will tip up the consumer confidence over all will have to be seen.

What do you think?  How will the TARP affect your personal finances this time around?

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