Facing the worst economic crisis since the Great Depression, Congress approved an unprecedented $700 billion Troubled Asset Relief Program (TARP) in October 2008 to rescue the nation’s banking system, get credit flowing to businesses and consumers, and help reverse the nation’s financial meltdown.
Under enormous pressure, with little time to spare and no playbook to follow, the Treasury Department’s newly created Office of Financial Stability (OFS) had to recruit highly qualified staff to administer TARP, build an operation from scratch, negotiate complex agreements to provide hundreds of billions of dollars, and ensure that their decisions were done according to the strict letter of the law and with strong fiscal controls.
TARP has been characterized as a bailout for the Wall Street bankers who precipitated the financial crisis, but analysts assert it contributed significantly to the stability of the broader financial system, saved jobs, kept Americans in their homes, and helped halt the economic slide. Funds also were used to assist troubled auto and insurance companies.
As of the spring of 2010, the TARP investments have cost taxpayers far less than originally anticipated. With the large banks having repaid tens of billions of dollars in loans and the Treasury having earned sizable profits on some of the investments, the total expected outlay of federal funds has declined from $341 billion a year ago, and is ultimately expected to be in the range of $100 billion.
None of this would have been possible without the dedication of the OFS employees drawn from both the public and private sectors who were motivated by a desire to help their country at a time of crisis.
Some joined the office on detail or leave from elsewhere in government, some came out of retirement, and some left highly lucrative private sector positions. The staff members found themselves working through weekends, holidays, long nights and early mornings to rescue the financial system and protect taxpayer investments. The staff began with five people, and in roughly one year, grew to more than 200.
Among the early hires to the TARP team was David Miller, who worked alongside the program’s first chief investment officer, and later took over that role. Miller helped establish policy, engaged in hard-nosed bargaining with banking giants, and made investment decisions to lend billions of dollars while extracting stock, warrants and other concessions to protect the taxpayer’s long-term interests.
During his first day on the job, Miller said, then-Chief Investment Officer James Lambright handed him a one-page summary of the plan to rescue Citigroup Inc., and told him to find people in the building to help execute it. In short order, that one pager turned into a complex 200-page document and a staggering $30 billion asset guarantee program and a $20 billion preferred stock investment, money that Citigroup ultimately would repay at the end of 2009. The government also currently expects to see a significant profit from its assistance to Citigroup.
“It was very entrepreneurial,” said Miller, who previously worked on Wall Street. “We had to simultaneously create new policy, execute complex transactions and build a great team. We had to get things done in a hurry, but we had to get it right. There was significant fear the financial system would cease to work.”
Jenni Main served as the chief financial officer (CFO) for OFS. She oversaw the creation and implementation of the accounting and financial control systems, and led OFS to receive a clean audit opinion from the Government Accountability Office – rare for any first-time operation, especially one of this size and complexity.
Main, who previously worked as CFO for the Small Business Administration, joined the TARP team in January 2009. She said there was a great deal of anxiety as well as a strong sense of mission as they worked to shore up the sinking financial sector, follow complex accounting rules for transactions unprecedented in government, and meet the demands of numerous oversight bodies.
“This involved a huge amount of money and the government needed to do a good job on behalf of the taxpayers,” said Main. “This was ground zero and we were able to deliver.”
Also integral to the team was Tim Massad, a corporate lawyer who became chief counsel of OFS in May 2009, and headed a staff of 15 lawyers responsible for vetting and structuring hundreds of financial transactions to ensure they complied with all securities and banking laws, as well as the provisions of the Emergency Economic Stabilization Act of 2008. This included scrutinizing all aspects of aid to the banks, the housing sector, as well as the auto companies and their bankruptcy proceedings.
Massad said the dedicated OFS staff, operating in “a very intense environment,” developed “creative approaches that prevented us from experiencing another Great Depression.”
Herb Allison, who took over as head of OFS in June 2009 after serving as Fannie Mae’s president and CEO, said it was “a giant task” to scale up a program of such magnitude , and then implement it successfully under dire economic circumstances.
“The people of OFS have done a spectacular job.” said Allison. “They had to provide massive amounts of money, implement a wide variety of complex programs and manage hundreds of investments, all while protecting the interests of the taxpayers. This is an example of how government should work.”