“Please, Please, Let Us Pay Back TARP — Please!”

June 8, 2009

The Facts

The federal government will announce this week, probably tomorrow morning, which banks will be allowed to pay back TARP funds. Nine banks are on the list. Earlier this year, treasury told the banks they had to raise enough capital from the markets to offset the TARP funds before they would be allowed to pay back any money. After that announcement, the bank initiated a public relations program to gain public support in paying the money back.

Among the banks being considered are AIG ($145 billion), JPMorgan Chase ($25 billion), Goldman Sachs ($10 billion), Citigroup ($45 billion), and American Express ($3.4 billion). By paying back the TARP money, the government will no longer be an investor in the banks, thus removing any controls they may have over them. The banks have made no secret that they were unhappy with government involvement, mainly in limiting executive pay and bonuses. As this article points out, “pay limits would not apply to firms that return their bailout funds”.

My View

I’ve said before — the banks couldn’t pay one red cent of the TARP money back if they did not have taxpayer money and backing through other government channels. The Federal Reserve and the Federal Depositors Insurance Corporation (FDIC) has been pouring money and guarantees into these banks like there’s no tomorrow. This Washington Post article says that money has come “through cheap loans, debt guarantees and a promise that big banks will not be allowed to fail”. The article goes on to say “officials say the government has created an artificial environment in which profits and stock prices have rebounded”.

So far the banks have received about $1 trillion dollars (that’s right – TRILLION) in cash from the Federal Reserve, but no one knows who got what. That’s because Federal Reserve chairman Ben Bernanke doesn’t think we taxpayers deserve to have that information. And Chairman Shelia Bair of the FDIC is using taxpayer money as collateral for private loans made to banks in case a bank goes bust. We have no idea how much that amounts to, but could be as much as another trillion dollars. But the banks will prevail. As Dean Baker points out in The Wall Street Whine: Goldman Sachs Edition, all the banks have to do is cry loud enough, and our politicians and appointed officials bow down to them.

By allowing the banks to pay back the TARP money, the government is no longer entitled to any profits the banks may generate. (Remember the guarantee that we’d share in profits if we taxpayers would just go along with TARP?) We taxpayers also get to absorb any losses the banks incur with the governments’ new program — in other words, we get to participate in yet another privatized profits and socialized losses program. This being the case, we might as well have told the Bush/Cheney administration to stay in the White House for another 4 years. No doubt they are all smiles this morning knowing their Wall Street friends still have friends in the White House.