Paulson Plan

The "Paulson Plan", formally termed the Troubled Asset Relief Program (TARP), was introduced in response to the 2007-2008 financial crisis. It was passed into law as the "Emergency Economic Stabilisation Act 2008" . The Act enables the United States Treasury to purchase mortgage-related assets and to take equity in selected banks, and includes provisions for the assistance of houseowners who are threatened with foreclosure. Under the plan, the United States Government will borrow $700 billion from the international money market, and then buy so-called 'toxic' assets from banks in the United States in return for a stake in each bank. The problem the bail-out is trying to solve is that once banks get into difficulty, other banks are not lending to them because of the possibility of the banks going out of business.

Critics of the plan come from both the left and the right of the political spectrum. Senator and Democratic Presidential candidate Barack Obama criticised the original formulation of the Paulson Plan stating that it did not provide adequate protection for those facing foreclosure, that it gave rewards to Wall Street executives for failure, needed better oversight and should include provisions for paying back to the taxpayer if it succeeds. Left-wing critics of the plan argue that it is hypocritical for the banks and Wall Street firms to have preached free markets for decades, then demand government help when things get tough - they should live by their word. They also point out that providing a nationalized health care system would cost dramatically less and benefit more people, but has always been "politically impossible", but it's now perfectly possible to bail out banks. Libertarians and free-market economists have also been critical, arguing that the bail-out is creating a precedent that investment is risk-free, and that the bail-out bill will increase taxes.