Troubled Asset Relief program and Capital Injection:

The troubled asset relief program is a program of the United States government to purchase assets and
equity from financial institutions to strengthen its financial sector that was signed into law by U.S.
President George W. Bush on October 3, 2008. It was one of the important measure and effort by the
U.S. government in 2008 to address the mortgage crisis. The TARP program originally authorized
expenditure of $700 billion. The Dodd-Frank Wall street Reform and Consumer Protection Act
reduced the amount authorized to $475 billion later on.
Capital Injection:
Capital injection was introduced along with the TARP program or as a part of the TARP program. By
capital injection what we basically mean is, providing liquidity in the financial system to restore the
public confidence. Capital injection was introduced as one of the temporary measure to rebuild public
confidence which may otherwise bring much more disastrous consequences in the whole financial
system of the U.S. even that of the world. The U.S. treasury was supposed to inject 125 billion in the
major U.S. banks as a means of preferred stock giving return of 5% for 5 years and 9% after wards.
The capital injection was intended to do with the help of following well known banks in America:
Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JP Morgan chase, Merrill
lynch, Morgan Stanley, State Street, and Wells Fargo. These banks are supposed to take certain fund
from the U.S. treasury and inject such in to the financial system through the lending activities.
How capital injection will help?
It is assumed that when more capital is injected into the financial system which is suffering from
liquidity crisis, this gives opportunity to expand the credit and availability of fund in the market. With
this people can have fund to borrow, buy home, buy car or do whatever they want to do. With this
they will not take the economy or banking system as troublesome and will not go for withdrawing
money at once. This brings public confidence and availability of credit in the whole financial system.
With capital injection program, bigger banks are supposed to cover the smaller banks in the US.
Capital injection was very much important, as per the movie, as the federal reserve chairman - Ben
Bernanke truly identified the need to build the public confidence in the banking system. He says that
hes spent his entire academic career studying the great depression, and that if we do not act, boldly
and immediately, we will replay the depression of the 1930s. Only this time, it will be far far worse.
Thus, the intention of the capital injection in the US economy was to rebuild the lost public.
Rebuilding public confidence means making public confidence or building credit by means of
increasing the supply of money. The capital injection is one of the important tool of monetary policy
and by increasing the supply of money, public are made able to buy house, cars, and whatever they
want. This makes them more confidence towards the bank and financial institutions and the so called
financial crisis could be tackled in more appropriately until the TARP could come into the existence.