Question

One of the first actions the 'uS covernment took in response to the Great Recession was de $700 billion Troubled Asset Relief Program (TARP) that was designed to purchase potentially bad loans and investments to banks. Why might the government have focused on helping The hanks first rather than homeowners who were devastated by the housing market collapse?

Answer 1

One reason the government might have focused on helping banks first rather than homeowners is that they viewed the banks as the cornerstone of the financial system. The government likely believed that if the banks failed, the entire financial system could collapse, leading to a much larger economic crisis. By bailing out the banks and stabilizing the financial system, the government hoped to prevent a complete economic meltdown.

Additionally, the government may have believed that helping homeowners directly would be more difficult and time-consuming than providing relief to banks. There were many challenges associated with helping homeowners, including determining who was eligible for assistance, determining the amount of assistance needed, and developing a mechanism for delivering the assistance. In contrast, providing assistance to banks was a more straightforward process that could be implemented quickly.

It's also important to note that the government did eventually provide assistance to homeowners, including programs such as the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP). However, these programs were implemented after the initial focus on stabilizing the banks and the financial system.