Tuesday, June 09, 2009

TARP Repayment

Today's story is that a number of "banks" have been granted approval to repay TARP monies. What's especially ironic is the several of these firms had to engage in some shenanigans just to get the money in the first place. American Express, Goldman Sachs, and Morgan Stanley all had to convert to bank holding companies in order to suck from TARP's teat. Why are they so quick to give the money back? Isn't it obvious? When these companies converted to bank holding companies in order to get the government cheese, the funds were essentially free money with no restrictions. Then came the public outrage, the pay caps, the government oversight - the strings attached!
Meanwhile, these firms also managed to issue government guaranteed debt - further shoring up any financial needs they had. Now they'll pay back the money (while still enjoying the FDIC guarantee on the debt they issued), tell Uncle Sam to Eff Off, and resume business as usual. Am I complaining? No - I certainly would rather have them repay the money - but I haven't heard anyone talk about a future stipulation that we MUST institute: any firm that repays TARP funds does not get a second chance in the future when we have TARP 2.0, TARP 3.0 whatever acronym we give the next bailout. Remember - banks never took the losses on their "toxic assets" and everyone is hoping that these assets were just temporarily impaired in value (due to a "lack of liquidity") and that the lenders will reap a full return on their investments. If reality turns out to be as ugly as I (and many others) expect - it's imperative that we don't allow these firms to come crawling back for more free money in the future.
The whole point of forcing the TARP funds on two handfuls of banks was to avoid the stigma of any banks having to look bad by going to the government for help. In other words, "If everyone is doing it, it's ok - there's no stigma." Barry Ritholtz has a piece today about how the whole thing was a ruse to hide the fact that Citi was insolvent. I actually mentioned this to a friend via email this morning before I saw Barry's post - which is to say, I agree with him.

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