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Wall Street bailout: a win for Main Street?

The TARP covers financial institutions, but average Americans are still waiting for help.

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Turmoil in the US stock market, born initially from the subprime mortgage lending crisis, has battered financial markets around the world, eroding investor confidence. Seeking to stabilize the situation, Congress approved a hefty $700 billion bailout package Oct. 3. The plan includes an initial $250 billion allocation, strong congressional oversight, and restrictions on executive compensation.

Also known as the "troubled asset relief program" (TARP), the bailout plan was initially intended by the US Treasury to buy toxic, mortgage-related assets from banks through a complicated auction system. But it quickly evolved into a direct bank-investment plan, paralleling a $3 trillion bank recapitalization plan put in place by European countries.

Using their new TARP authority, the US Treasury purchased preferred non-voting equity shares in nine major US banks with the expectation of collecting an initial 5 percent dividend and 9 percent at the end of five years. In future weeks, the Treasury will purchase shares in hundreds of smaller regional banks.

Both measures, a capital infusion into banks and the later purchase of troubled mortgages, aim to increase liquidity in financial markets. TARP also temporarily raised the limit of deposits insured by the FDIC and the National Credit Union Administration from $100,000 to $250,000 per account.

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