Breaking the Bank- Understanding Terms

The Troubled Asset Relief Program. (T.A.R.P.):
On October 3, 2008, President Bush signed T.A.R.P. into law. This bill provided $700 billion dollars in bailout money to the top banks in the nation, as they were poised to fail due to risky investments in bad mortgages brought on by the bursting of the housing bubble.

The Housing Bubble:
Housing prices saw tremendous growth starting in 2000, and peaking around mid 2005. Houses that were worth, say, $200,000 in 1999, were now valued at as much as $450,000 by 2005. Many homeowners were using the equity in their homes as a bank, taking out huge second mortgages to finance everything from the college education of their children to major renovations and additions to their homes. The banks were happy to oblige the homeowners by allowing them to refinance their homes for up to 100% (or even higher) of their home's perceived value. Mortgages were readily available for buyers and "20% down, no doc" mortgages were popular (a buyer only had to put down 20% of the asking price and the banks didn't even trouble to see if the perspective buyer was employed). Not all finance gurus were in on the party and some warned of the housing bubble bursting. When it finally burst, it almost took the whole financial system in America down with it. Now millions of homeowners owed more on their homes than their houses were worth as home values plummeted. Mortgages began to default and the financial crisis began that was addressed in "Breaking the Bank."

Toxic Assets:
Assets without a buyer, so they hold little to no value. (If Dave Barry were writing this blog, he would say The Toxic Assets would be a good name for a rock band.) Defaulted loans are often cited as toxic assets, leading to the housing bubble burst and the subsequent financial crisis, followed by the Big Bailout. Many homeowners who were now in danger of losing their homes to foreclosure wanted to know, "Where's my bailout?" The banks were delivered from their toxic assets with money from T.A.R.P., while the taxpayers were allowed to drown in their own sea of debt.