In a previous post, it was reported here that the Emergency Economic Stablization Act of 2008 enacts a new Federal Insurance Program. Here is the Act; the new Federal Insurance is enacted in Section 102.
The Insurance for TARP is new because TARP is new. "TARP" is the Federal acronym for Troubled Assets Recovery Program, i.e., the Federal handout, er, bailout for "troubled assets originated or issued prior to March 14, 2008, including mortgage-backed securities."
In Section 102, Congress required the Treasury Secretary to establish a guarantee program to back TARP. In basic terms, Premiums are to be set by the Secretary in an amount sufficient to provide necessary reserves. Premium rates are permitted under the Act to vary "according to the credit risk associated with the particular troubled asset that is being guaranteed," but the Secretary is required to "publish the methodology," and the Secretary's methodology "shall ensure" that the necessary Premium is charged.
Above all, and over all, Premiums for this new Federal Insurance "shall be set by the Secretary at a level necessary to create reserves sufficient to meet anticipated claims, based on an actuarial analysis, and to ensure that taxpayers are fully protected."
Time will tell, as they say.
Many thanks to Ms. Lori A. Montgomery of the Washington Post, a fine reporter who knows more about these subjects than most people will ever learn unless they read her reports, for her assistance in locating these provisions in an Act that runs to 451 pages.
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