We begin 2009 hopeful that economists and policymakers are

quicker to call an end to the recession than they were to declare

the beginning of one. Our year started with the outgoing

administration requesting the final $350 billion of the overall

$700 billion in TARP funds. Upon taking office, we expect the

incoming administration to submit to Congress a $825 billion

American Recovery and Reinvestment Plan (ARRP or the Recovery

Plan). These initiatives follow the unprecedented efforts in 2008

by the Secretary of the Treasury (Treasury), Federal Reserve Board

(Federal Reserve), Federal Deposit Insurance Corporation (FDIC),

Securities and Exchange Commission (SEC) and others to address the

financial crisis that has gripped the country.

While observers, participants and policymakers have

overwhelmingly come to the conclusion that no one factor is to

blame for the current crisis, the precipitating event was the

collapse of the mortgage market. Stagnant and falling home prices,

and resetting adjustable-rate mortgages that couldn't be

refinanced, triggered rising foreclosures and began a downward

spiral of home values. The resulting impact to the mortgage-backed

securities market turned an American mortgage crisis into a global

financial crisis.

Below we take a look at the reactions of the Treasury and others

to the growing crisis, beginning with a review of the TARP. As we

look ahead, we consider the modernization of financial system

regulation that is needed to prevent future crises. Our current

regulatory structure was born out of crisis, but has not kept pace

with the innovation and globalization of financial instruments or

markets. We hope that as we consider the transformation of our

regulatory system, we will be able to learn from history and build

a comprehensive system for the future, not one that only addresses

the issues of the present.

Please see our financial crisis related Client Alerts at

http://www.mofo.com/news/updates/files/14605.html.

PART I: THE TARP

How Did We End Up With A TARP Over Our Heads?

In 2007, dozens of sub-prime mortgage originators filed for

bankruptcy. By the end of 2007, financial institutions were

reporting a steady stream of write-downs. By the beginning of 2008,

we saw the cracks beginning to deepen and spread. The highlight of

every discussion of the economy was the mortgage market, sub-prime

lending and mortgage-backed securities. The American public was

learning about CDOs-squared. The free market economy approach told

us that investors and borrowers alike take risks and must bear the

burden of their decisions. But with systemic implications, the tide

began to turn. Main Street needed mortgages modified and Wall

Street needed to stem the tide of eroding balance sheets or risk a

lending freeze that could cripple the economy.

Traditional players, such as the Federal Reserve, took action,

as described in more detail below and as outlined in our summary of

federal programs in APPENDIX A. But by September 2008, Treasury,

reportedly upon the urging of Chairman Bernanke, realized that

unprecedented action was required, outside the scope of the current

authority of the existing regulators.

In late September, Treasury presented Congress with a plan to

spend $700 billion. The TARP was passed in a two-week whirlwind

that saw a three-page Treasury proposal transformed into the

168-page Emergency Economic Stabilization Act of 2008 (Act) that

was signed into law on October 3, 2008. The Act established the

Office of Financial Stability within Treasury to run the TARP, and

enact innumerable other related and unrelated laws. TARP was

drafted, presented to Congress, and ultimately approved, as a

balance sheet stabilization program for financial institutions.

Treasury's plan was to buy mortgages and mortgage-related

assets from financial institutions, stabilizing their balance

sheets, and giving Treasury control over or ownership of an

enormous portfolio of mortgages that could be modified.

As TARP was presented to Congress, the policy debate focused on

the following:

Size: Should Treasury be handed $700 billion

to spend?

Use of Funds: Why did Treasury propose bailing

out Wall Street? Isn't Main Street at the crux of the crisis

and shouldn't taxpayer dollars be returned to the taxpayers

rather than given to the Wall Street executives who benefited from

the risky decisions that contributed to the crisis?

Accountability: Who will hold Treasury

accountable for fulfilling the purpose of the Act and its use of

taxpayer funds? Will recipients of the TARP funds receive a free

ride, or will they be held accountable for leading their

institutions into trouble?

Troubled Asset Pricing: Will Treasury buy

mortgage-related assets at cost potentially overpaying

with taxpayer dollars? Or will Treasury buy mortgage-related assets

at current prices potentially reducing the number of

willing sellers? Can Treasury find a way to price assets slightly

above their carrying value but below cost and is Treasury

qualified to do that?

The Act ultimately addressed some of these concerns:

Size: The $700 billion will be released in

stages, and Congress gave itself the authority to block the last

$350 billion.

Use of Funds: Numerous provisions were added,

including a statement of purpose that use of the Act's programs

must ensure protection of home values, college funds, retirement

accounts and life savings, must preserve homeownership and must

promote jobs and economic growth. Additionally, to the extent it

acquired mortgages and mortgage-related securities, Treasury was

required to implement a plan to maximize assistance to homeowners

and prevent avoidable foreclosures.

Accountability: The Act requires that Treasury

comply with significant reporting obligations and a program of

oversight was established. Participants are subject to executive

compensation limits and any significant investment by Treasury

using TARP funds requires that Treasury receive warrants or

debt.

Troubled Asset Pricing: The Act requires that

Treasury may not purchase any asset at a price above cost, and

premiums for the insurance program must create a sufficient reserve

to cover expected losses, based on actuarial analysis.

Additionally, within five years, if there is a shortfall under the

TARP, the President must submit a plan to recoup the shortfall from

the financial industry.

From Design To Implementation

On October 14, 2008, Treasury launched its first program under

the TARP, the Capital Purchase Program. The announcement

represented a shift from the proposal presented to Congress. The

plan to purchase mortgage-related securities from financial

institutions to provide balance sheet relief had been replaced with

a program for Treasury to make capital investments directly in

insured depository institutions and their holding companies. Under

the program, healthy financial institutions receive capital

injections and, in turn, agree to the executive compensation

restrictions in the Act and additional corporate governance

limitations.

The perceived shift in the use of the TARP funds from the

description provided to Congress raised alarms immediately.

Treasury explained in its October 14 announcement that the program

was needed to restore confidence in the American banking system.

This confidence was required to "ensure that the U.S.

financial system performs its vital role of providing credit to

households and businesses and protecting savings and investments in

a manner that promotes strong economic growth in the U.S."

Since that date Treasury continues to explain that, at the time, it

feared the banking system was near collapse and immediate action

was needed. Developing an effective asset-purchase program,

including establishing a pricing mechanism, Treasury explained,

would take too long to put in place. Recently, Treasury provided

additional detail into its decision-making by disclosing its use of

the LIBOR-OIS spread as a measurement of confidence in the banking

sector. Typically at 5- 10 basis points, by October 10th the spread

had risen to 338 basis points.

Despite this information, Treasury's statements failed to

quell the call for change in the methodology for allocating and

managing TARP funds. Specifically, critics seek (1) additional

transparency into use of taxpayer funds by recipients, (2)

additional restrictions on the ability of recipients to deploy

funds, including limitations on using these funds for compensation,

dividends and mergers, (3) assurance that participants satisfy

minimum lending requirements and (4) implementation of mortgage

modification programs.

Subsequent allocations of TARP funds have only added fuel to the

fire. Treasury next allocated TARP funds to AIG, the global

insurance company that had received an earlier bailout from the

Federal Reserve. At the time of the Federal Reserve bailout, the

impact of the crisis on insurance companies, such as AIG, was not

widely known. Despite explanations of the impact on AIG's

financial condition of its portfolios of mortgage-related

securities and credit default swaps (CDSs), and the potential

systemic impact of AIG's failure, allocation of the TARP funds

to AIG was not well received. The AIG investment was seen as

another deviation from the original purpose of the TARP.

In the second bailout of AIG, Treasury imposed additional

limitations upon AIG, including golden parachute prohibitions, a

freeze on top executive bonuses, restrictions on expenses and

lobbying and additional corporate governance requirements. Rather

than embrace the additional restrictions as imposing accountability

on a TARP funds recipient, critics questioned why similar

limitations were not imposed upon earlier recipients of TARP funds

and the Capital Purchase Program applicants that had yet to receive

their allocations.

In addressing why the limitations under the Capital Purchase

Program are not as stringent as those imposed on AIG (or those

imposed by subsequent government programs), Treasury notes both

that the Capital Purchase Program restrictions are those mandated

by the Act and that, as a voluntary program, onerous restrictions

could have a chilling effect on a financial institution's

decision to apply. These positions have not been persuasive for two

reasons. The first is that to describe as "voluntary" a

$250 billion program to save the banking system from collapse,

under the authority of an emergency stabilization act, seems

disingenuous. The second is that, quite simply, Treasury said it

was going to do one thing and then quickly did another. Treasury

cannot overcome the burden of proof relating to this second claim,

despite numerous and repeated explanations of its rationale.

On November 12, 2008, Secretary Paulson announced that other

TARP programs were being evaluated but that it was unlikely any

funds would be used to purchase mortgages or mortgage-related

assets. Critics were quick to react, expressing their concern that

taxpayer funds had been allocated for a program that wasn't

being used. We suspect that, again, the primary issue is that

Treasury was deviating from its stated plan. The probable validity

of Treasury's findings in evaluating the market and the

potential viability of various programs were irrelevant in the face

of Treasury's unwillingness to execute the initial proposal

that it had so forcefully pushed through Congress.

At the same time, questions were being asked about the

foreclosure crisis. Although the Act requires that its funds be

"used in a manner that . . . preserves homeownership,"

Treasury has not taken direct action under the TARP to address

foreclosure and mortgage mitigation. In response to criticism,

Treasury highlighted its establishment of the HOPE Now Alliance in

2007, a coalition of servicers and other market participants

working toward mortgage modification and its early September

investments in, and support for, Fannie Mae and Freddie Mac. These

actions, however, were outside the TARP authority.

On November 23, 2008, following Citigroup's earlier

participation in the Capital Purchase Program, Treasury announced a

subsequent investment. Additionally, Treasury, the Federal Reserve

and the FDIC agreed to protect Citigroup from losses arising from a

portfolio of troubled assets. In exchange for the federal relief,

Citigroup agreed to utilize the mortgage modification program

developed by the FDIC. Critics asked why only Citigroup was being

required to implement a mortgage modification program; why not all

TARP recipients? Again responding to critics, Treasury highlighted

the Capital Purchase Program's voluntary nature and the

participation by only healthy institutions. It has been noted that

Citigroup was approved for the initial capital injection,

apparently upon a finding by Treasury that Citigroup was a healthy

institution, but within weeks Citigroup required additional

capital. The additional capital investment was made under the

Treasury's Targeted Investment Program, a program that

conditions allocation of TARP funds on such factors as the extent

to which "destabilization of the institution could threaten

the viability of creditors and counterparties exposed to the

institution," the extent to which the "institution is at

risk of a loss of confidence and the degree to which that stress is

caused by a distressed or illiquid portfolio of assets." While

the Targeted Investment Program does not require that a participant

be found to be "unhealthy," the more stringent

restrictions imposed upon Citigroup for the second investment led

to questions regarding both its health as well as Treasury's

judgment in approving the initial investment. Although

Treasury's most recent TARP investment was conditioned on the

recipient modifying mortgages addressing a prime

complaint the need to give a second round of capital to

an institution so quickly called into question the standards that

Treasury was using to identify "healthy"

institutions.

On November 25, 2008, Treasury announced a joint program with

the Federal Reserve designed to increase lending to consumers. The

Term Asset Backed Securities Loan Facility will make loans

collateralized by newlyissued consumer and small business

asset-backed securities, to restart the frozen securitization

market. The program was designed to prevent further disruption in

consumer and small business lending. By the time this latest

program was announced, Treasury had made investments in healthy

financial institutions, an investment in an unhealthy insurance

holding company, an investment in a troubled financial institution

and announced a program to improve consumer lending. Questions

continued to arise, focused on whether these efforts were having

the desired effect. Faced with another program designed to assist

the credit markets, critics asked whether the Capital Purchase

Program had improved lending; were recipients using the additional

capital to extend credit and improve the economy? Treasury

consistently responds that while the funds have been allocated,

disbursements have been slower to come. Treasury also cites low

confidence levels as impacting the extensions of credit, and has

stated that "as confidence returns, Treasury expects to see

more credit extended." Perhaps the most on-point response to

these critiques was Treasury's recent statement distinguishing

the expectations one can have from the TARP, a stabilization plan,

from the increased spending that is expected to flow from a

stimulus package. Nevertheless, Treasury's own statements

regarding extensions of credit give credibility to the inquiries

into when lending will resume.

When the automakers came, hat-in-hand, to Washington for bailout

funds in late November, Congress insisted on more visibility into

the use of taxpayer funds. Congress could not agree upon

legislation to avoid the bankruptcy and collapse of the American

automotive industry, and despite the initial contention that the

TARP did not authorize an auto manufacturing bailout, Treasury

ultimately allocated and dispersed TARP funds to GM and Chrysler.

The package requires government approval of a restructuring plan

and a labor agreement modification plan and imposes restrictions on

executive compensation beyond those required under the Act. Again,

although Treasury's bailout incorporated the additional

restrictions critics had requested, the auto restrictions became

the new standard that critics believed should apply to all TARP

recipients.

Most recently, Chairman Bernanke stated that "with the

worsening of the economy's growth prospects, continued credit

losses and asset markdowns may maintain for a time the pressure on

the capital and balance sheet capacities of financial institutions.

Consequently, more capital injections and guarantees may become

necessary to ensure stability and the normalization of credit

markets." The Chairman discusses several options for improving

financial institutions' balance sheets, but TARP funds are part

of the solution. A resolution to the dispute between Treasury and

lawmakers is needed to move the discussion forward toward a

solution.

TARP Today And Tomorrow

Next we look at where the TARP is today, including the

allocations that have been made and the recently announced Asset

Guarantee Program, followed by a review of some of the extensive

TARP reporting from oversight bodies, the proposal to amend the

TARP presented by House Representative Barney Frank, and what is on

the horizon for the TARP.

TARP Spending Recap

Treasury allocated the first $350 billion of the $700 billion

authorized by the TARP. Treasury's recently submitted Section

115 report to Congress1 outlining the plan for the final

installment of TARP funds confirms our back-of-the-envelope

calculation on TARP allocations to date. Our tally:

Initial Allocation:

$350.0 billion

Less Commitments:

Capital Purchase Program

$250.0 billion (up to)

AIG Investment (Stage 2)

40.0 billion

Citigroup Bailout

25.0 billion (up to)

TALF

20.0 billion

Auto Bailout

14.4 billion

GMAC

5.0 billion

Bank of America

20.0 billion

Commitments Subtotal

$374.4 billion

Excess over Initial Allocation

$24.4 billion

Under the Act, the remaining $350 billion must be requested, and

Congress has 15 days, subject to some statutory adjustments to that

time frame, to reject the request. On January 12, 2009, at the

incoming administration's request, the outgoing administration

requested the additional TARP funds from Congress and Treasury

submitted its plan for their use. Treasury's plan noted that

any allocation of the next $350 billion will be undertaken by the

next administration and referred Congress to the January 12, 2009

letter2 from the Office of the President-elect broadly

outlining the next administration's goals. That letter asks

Congress to approve the request for additional funds and commits to

increase transparency and accountability under the TARP.

On January 15, 2009, a Senate resolution of disapproval failed

to obtain the necessary votes. A joint House and Senate resolution

of disapproval being required to block the final $350 billion,

failure by the Senate to disapprove the request will result in the

additional funds being released to the Treasury. In addition to the

January 12 letter, President-elect Obama reportedly committed to

spending between $50 and $100 billion of the remaining funds on

foreclosure prevention. By addressing one of Congress' critical

concerns, TARP may be back on track.

Recent TARP Programs Asset Guarantee Program

The Act requires that Treasury develop a program to provide

insurance on troubled assets, in order to minimize their potential

ongoing negative impact on financial institution balance sheets. On

October 14, 2008, Treasury solicited public input on such a program

and on December 31, 2008, Treasury issued its report, establishing

the Asset Guarantee Program. Treasury is evaluating whether the

loss protection provided to Citigroup in the transactions announced

on November 23, 2008 will fall within the new program.

The Asset Guarantee Program will provide guarantees on troubled

assets held by "systemically significant financial

institutions that face a high risk of losing market confidence due

in large part to a portfolio of distressed or illiquid

assets." This is one of the factors used to evaluate whether

an institution qualifies for the Targeted Investment Program, the

program used for the follow-up Treasury investment in Citigroup.

Treasury notes its expectation that the guarantee program will not

be made widely available, and potential participants will be

evaluated using the same five factors established for the Targeted

Investment Program. (See APPENDIX A for a brief description of the

Targeted Investment Program.)

To be eligible for the guarantee, the troubled asset must have

been originated prior to March 14, 2008. Treasury will provide

protection against specified losses on each asset. Such protection

may be structured in a manner that is similar to the Citigroup

transaction, with one party (e.g., Citigroup) assuming the first

loss position, and Treasury assuming a secondary or other loss

position, which may represent all or a portion of the losses in

that position. The premium charged by Treasury for the loss

protection may be paid using the institution's securities, as

was the case with Citigroup. Additionally, the institution will be

subject to portfolio management guidelines for the covered assets,

to be established by Treasury.

The report on the program notes the unique accounting for the

guarantee as mandated by the Act and outlines Treasury's

considerations when evaluating how to structure a guarantee. The

guaranteed troubled asset's full value reduces the funds

available for use under the TARP, offset by the value of any cash

premium received by Treasury. Non-cash premiums, such as preferred

stock, will not offset the reduction of available TARP resources.

As a result, Treasury will evaluate on a case-by-case basis the

troubled assets to be covered by the program to minimize the impact

to available funds.

Treasury's report also notes ongoing efforts to continue to

evaluate the development of other insurance programs. In doing so,

Treasury will be guided by two factors. The first is the TARP

accounting for guarantees: that the impact to available TARP funds

is the same for insuring an asset as for purchasing an asset. We

expect Treasury will carefully evaluate whether it can maximize the

use of those TARP funds through insurance, compared to the other

available uses. Additionally, in order to determine the appropriate

premium for a complex security, such as a asset-backed security,

Treasury must undertake a detailed analysis of the related asset.

As a result, broad-based auctions or other programs to offer

insurance to large groups of troubled assets, even asset classes,

would not properly price the related premiums, an outcome

inconsistent with prudent allocation of TARP resources and

protecting the taxpayers' investment.

We anticipate that the technical difficulties for pricing

premiums and the challenging accounting of the insurance program

will result in limited use of the program.

Reports Of Oversight Bodies

Whether or not there is a lack of transparency related to the

TARP, the Act's extensive reporting obligations have compelled

the production of reams of paper. Treasury publishes special

reports, transaction reports, monthly reports and periodic tranche

reports. The Government Accountability Office (GAO) published its

first TARP report3 and will continue to issue reports

every 60 days for so long as TARP investments are outstanding, with

the next report due January 31st. The Congressional Oversight Panel

(Panel), formed under the Act, issued the first two of its monthly

reports4 and will release its regulatory reform

recommendations on January 20, 2009. The GAO report focused its

recommendations on the development of internal controls,

administrative matters and the development of tools to measure

success under the TARP. The Panel reports focused on broader policy

questions, looking into Treasury's strategy and plans as well

as Treasury's adherence to the Act's stated purposes. All

reports ask for additional transparency into recipients' use of

TARP funds and discuss the lack of direct TARP spending in the

mortgage industry or markets.

GAO Report: The GAO Report highlights some

"critical issues" that Treasury has yet to address,

including ensuring that the Capital Purchase Program will achieve

its intended goals and that participants will comply with the

program requirements. The GAO recommends that Treasury work with

banking regulators to establish a system to monitor Capital

Purchase Program participants. The report encourages Treasury to

develop and document systems for internal controls, final conflict

of interest standards, improved contractor management,

communication strategies and transition plans.

Separately, the GAO reviewed TARP's Office of Financial

Stability and testified as to its efforts related to the mortgage

crisis. The GAO notes that Treasury is still developing its

homeowner preservation efforts under the Office of Homeownership

Preservation within the Office of Financial Stability. Initial

reports have not made direct recommendations but indicate that the

GAO will continue to monitor Treasury's progress in this

area.

Congressional Oversight Panel: The Panel's

goal is answering the following questions: (1) Who got the money?

(2) What have they done with it? (3) How has it helped the country?

and (4) How has it helped ordinary people?

In its first report on December 10, 2008, the Panel poses

detailed questions to Treasury about the TARP. The Panel asks for

information about Treasury's strategy, the TARP's policy

goals, how Treasury will measure success, the measurements used by

Treasury to assess the value of investments and what is being done

about mortgage modification. The Panel sought Treasury's

responses to inform the Panel's answers to its four primary

questions.

Although Treasury responded to the Panel in a December 30

letter, the January Panel report5 directly criticizes

the depth and breadth of Treasury's responses, going so far as

to provide a chart that highlights the numerous questions for which

the Panel received "No response" from Treasury.

TARP, As Amended?

Chairman of the House Committee on Financial Services, Barney

Frank, proposed amendments to the TARP6 to clarify

Treasury's authority under the TARP, to impose restrictions on

the use of TARP funds by recipients, to increase transparency

regarding the use of funds and to mandate mortgage foreclosure

mitigation efforts. The proposal calls for quarterly reports by all

program participants. The proposal also prohibits, without

Treasury's prior consent, in consultation with the appropriate

banking regulator, the merger of a participant in the Capital

Purchase Program.

Executive compensation requirements would be extended as well.

The proposal removes de minimis exemptions in the Act for imposing

executive compensation limitations on smaller TARP recipients. In

addition to the current restrictions in the Act, institutions would

be subject to enhanced limitations, including a prohibition on any

bonus or incentive compensation paid to the 25 most

highly-compensated employees.

The proposed legislation would make the $250,000 deposit

insurance limit permanent. If the insurance limit is not made

permanent in connection with TARP legislation, we expect that this

proposal will continue to be put forth throughout the year and will

likely pass this year.

The FDIC's ability to recover a loss to the Deposit

Insurance Fund through special assessments on depository

institutions would be expanded to include special assessments on

depository institution holding companies. For example, if there is

a shortfall under the FDIC's TLGP program, a special assessment

will be imposed on depository institutions. Smaller depository

institutions have raised concerns that they would bear a

disproportionate burden of any shortfall because the FDIC does not

have the statutory authority to impose any such special assessment

on holding companies participating in the TLGP. The FDIC tried to

address these concerns by imposing an increased participation fee

on holding companies whose primary business activities were outside

their subsidiary depository institutions, but the fee would not

necessarily be sufficient to cover any shortfall from the

program.

As discussed, criticisms of the TARP have been sustained and

consistent. Given the commitment of Presidentelect Obama to direct

TARP funds to foreclosure prevention and Congress' need to

focus on the Recovery Plan, the proposed amendments may lose some

of their support. Nevertheless, we expect that what is left of the

final $350 billion will be deployed differently than the initial

TARP funds.

What's Next?

Congress will continue to question and study the outgoing

administration's programs. Despite strong interest in

Congress in continuing to follow up on the use of TARP funds,

consideration of a stimulus package and monitoring mortgage

modification efforts may take priority in the near-term.

Additionally, a new Secretary of the Treasury may be given a small

amount of breathing room to "prove himself" to

Congress.

While Congress may grant the new Secretary of the Treasury some

breathing room, he may be too busy staffing the Office of Financial

Stability and providing leadership to the regulatory reform

initiatives, a report on which is due on April 30, 2009, to

effectively push a comprehensive plan for spending $350 billion.

Prioritizing will be challenging for both the administration

and the Congress.

The new administration will test its relationship with Congress

with a new stimulus package. Will the President-elect be

successful in passing an earmark-free stimulus package?

Given the impact of the financial crisis on states,

municipalities, utilities and other industries, and the current

focus on the financial sector, state elected officials will be

highly motivated to ensure that funds are sent home.

Treasury published Capital Purchase Program terms for S

corporations on January 14, 2009. Will the Capital Purchase

Program ultimately include mutual institutions as well? What other

changes are in store for Capital Purchase Program participants?

What about the potential to expand the program to other financial

institutions? Will Chairman Bernanke's statement on January 13,

2008 that more capital is needed prove true?

Additional information, in some form, will be requested of

Capital Purchase Program participants. Will Congress and the

oversight bodies achieve the transparency they seek into the uses

of the TARP funds?

Treasury is working with banking regulators to design a

program to measure bank lending activity. Treasury will use both

quarterly reporting to the banking regulators as well as a

"selection of data [Treasury plans] to collect monthly from

the largest banks we have invested in for a more frequent

analysis." We expect they are focused on the largest banks in

part to minimize the outcry from smaller program participants

against any additional regulatory burden. But all institutions

should expect additional scrutiny, whether directly from regulators

and the Treasury, or from those questioning whether best practices

are being followed.

More broadly, Treasury releases transaction reports 48 hours after

each investment, tranche reports after each $50 billion is spent

and monthly reports as required under the Act. The Congressional

Oversight Panel and the GAO are also releasing regular reports.

Most of these routine reports are required until the last TARP

asset has left Treasury. We can expect an ongoing flood of

information from TARP, and more to follow under any additional

stimulus packages.

Treasury proposed one program under the insurance provisions of

the Act and promised to consider more. Will insurance, the

Republicans' brain child, fade into history with the 110th

Congress?

A program to insure or guarantee troubled assets has

tremendous potential to provide support to financial institutions.

However, as the insurance provisions are drafted in the Act, the

accounting ties up a significant portion of TARP dollars. It

isn't clear that a guarantee program will have a meaningful

impact, unless made available to only significant institutions on

the brink of failure. Perhaps a better proposal to amend the Act

would have been to create a TARP insurance program using an

insurance company model for allocating the TARP capital.

Footnotes

1.Treasury's plan is available at: http://www.whitehouse.gov/news/releases/2009/01/20090112-7attachment.pdf.

2. http://multimedia.nydailynews.com/pdf/2009/01/12/Summers_Letter_to_Congressional_Leadership.pdf.

3. The December 2008 GAO report is available at http://www.gao.gov/new.items/d09161.pdf.

4. Reports of the Congressional Oversight Panel are

available at http://cop.senate.gov/.

5. The January 9, 2009 report is available at http://cop.senate.gov/documents/cop-010909-report.pdf.

6. The proposed TARP Reform and Accountability Act of

2009 is available at: http://www.house.gov/appsst/press/financialsvcs_dem/hr384.pdf.

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Because of the generality of this update, the information

provided herein may not be applicable in all situations and should

not be acted upon without specific legal advice based on particular

situations.

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