Banks can repay TARP, but Treasury keeps warrants
posted at 2:14 pm on June 9, 2009 by Ed Morrissey
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Ten banks that took TARP money have approval to repay the funds, the Treasury announced today, heralding it as a major step forward of “financial repair.” Instead, it should prompt questions about the decision to shove billions into otherwise healthy banks, and how the government intends to continue its control over the financial institutions regardless:
Ten of the nation’s largest banks will be allowed to repay $68 billion in federal aid granted at the height of the financial crisis, the Treasury Department announced this morning.
The government did not name the banks, which could begin to return money this week, but the list includes J.P. Morgan Chase, Goldman Sachs and Capital One Financial of McLean, according to the companies and other sources.
The decision is a milestone for the Obama administration’s financial rescue plan, reflecting new confidence that some large banks have returned to stable profitability. It is also a victory for the banks, which have pressed for permission to show strength and to avoid restrictions including limits on executive pay. But senior officials cautioned that the repayments are not a sign of a broader economic revival.
“These repayments are an encouraging sign of financial repair, but we still have work to do,” Treasury Secretary Timothy F. Geithner said in a statement.
These institutions received the funds only a few months ago, and the rapidity of their repayment demonstrates that few if any of them needed the support in the first place. Last month, Judicial Watch proved that Geithner’s predecessor Hank Paulson forced them to accept the cash over their objections. The banks rightly predicted that government subsidies would result in government interference in their businesses, although perhaps even they didn’t see just how arrogant the Obama administration would get.
If they hoped to avoid further interference, this development doesn’t bode well:
The government will continue to hold warrants in the 10 banks, allowing it to purchase shares of their common stock. Administration officials say they have no intention to exercise the warrants, which would give the government ownership stakes in the banks. But negotiations over how much the banks should pay the government to tear up the warrants — which analysts estimate are worth about $5 billion — have yet to find common ground.
Yes, we can trust them not to exercise the warrants, because after all, when has this administration ever used power it didn’t have? Never mind the fact that it extorted concessions from Chrysler and GM bondholders in order to benefit Obama’s political allies in the unions, stomping all over contract law. The White House would never in a million years use the warrants to extort concessions on business operations from the bankers … right? Right? Bueller? Bueller?
And once the Treasury gets the money back, they will apply it to the raging deficit and strengthen the dollar and Treasuries on the market, I’m sure. Well, actually, no, as HA reader Geoff A found (emphasis mine):
The Treasury Department has given 10 banks—including Goldman Sachs, JP Morgan, American Express, and Capital One—permission to repay their TARP loans, the Wall Street Journal reports. The government will recoup $68 billion faster than anticipated, but the money won’t go back into the public coffers; Tim Geithner intends to deploy it to assist other firms, including some that have already received TARP funds.
Why not? Why pass on an opportunity to aggrandize Obama’s power further in the markets?
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Americans are practical people. Historically, we have been practical rather than ideological when it comes to most things… especially during a crisis. TARP was a practical response to a crisis. I think you are seeing this through an ideological prism rather than seeing the practical aspects of the warrant issue. There is nothing illegal here. If holding the warrants was causing the banks to suffer or harming the public somehow I would understand. There is an upside to holding the warrants for tax payers. I would be a good idea for the aid given to banks to be self-financing. Many here want this to be more expensive for tax payers and the government. To me… that is more un-American than holding the warrants longer.
lexhamfox on June 9, 2009 at 6:12 PM
Bank shares have already risen a huge amount since the issuance of the warrants. The profit is there, right now. Holding onto the warrants only keeps the federal government exposed to the movement in the values of bank shares – i.e. speculating on bank shares.
Why do you think the government should be speculating in private stocks? Why does that concept not bother you? What do you have to say about the reason the warrants were issued and how that reason ceases to exist with the repayment of the TARP funds?
TARP was one possible response to the crisis, and neither the best response nor the Constitutional one. Do you remember how Paulson originally came in with a three page description for the authorization of TARP? DO you remember what the moron Dems wrote instead? Do you remember that it took the courageous pushback of House Republicans to get the moron Dems to put any oversight into TARP, at all? Do you understand how that last bit of legislation was still un-Constitutional (as evidenced by the Geithner interpretation that TARP is now a permanent slush fund for Treasury to use for anything it sees fit)?
This is not ideology. This is practical Constitutionality. This is about the very real preservation of our nation.
But, when we have a bunch of morons that ram through almost a trillion in federal waste without letting anyone have time to even examine it the bill, I guess TARP seems almost reasonable by comparison. That’s how far we’ve fallen. It is pathetic and dangerous beyond words.
progressoverpeace on June 9, 2009 at 6:23 PM
The warrants will be worth more as we emerge further out from the crisis. The stock prices are still historically low for many of the firms who have returned the funds. I think there is plenty of upside left without this creating an undue exposure to the tax payers. The chairperson of the oversight board you thought was a great idea agrees. I respectfully disagree with you on this as being some sort of threat to our nation.
lexhamfox on June 9, 2009 at 6:34 PM
That is called SPECULATION. You are advocating that he federal government become a stock speculator. There are other shares that will rise when/if we emerge from this crisis, too. Shoudl the federal government speculate on them, too? They could make a lot of money – more than speculating on the banks, even.
The exposure is undue, in and of itself. And it is un-Constitutional, to boot.
Where did I say that anything about TARP was a “great idea”? I only expressed that the ridiculously pathetic oversight that was finally put in was not as awful as the original bill had structured things.
Let me say this slowly for you – TARP was un-Constitutional and stupid, oversight or not, but it would have been even worse without any oversight. As it is, there is an infinitesimal amount of oversight. Yippee!
And I couldn’t care less what anyone else thinks. I am giving you my views.
When the Constitution is actively ignored, this nation comes under very serious threat. The Founders understood that the best way to fashion a governmental structure that would be rigorous and strong, though not strangling to the citizenry, was through the limitation of power and then the appropriate ways of breaking that power up and placing different entities in competition/conflict/partnership in their quest to exercise the bits of power that they were assigned. This is the essence of the Constitution, not the social drivel that most lefties think it’s all about. To dismiss this is to violate the most deeply held views of the Founders about what America is, and to take away our true strength.
That’s okay, because the idiot messiah’s anti-individualist, anti-competitive, anti-capitalist, anti-growth, enviro-wacko and insane spending policies will kill the dollar, anyway, and end this nation’s existence, so the whole TARP problem will just end up in the background of a dead federal structure.
progressoverpeace on June 9, 2009 at 6:47 PM
Man….silly me. I never got permission to pay back my car loan or my home loan, nor for any credit card I’ve ever had.
Am I in trouble?
Spiritk9 on June 9, 2009 at 7:15 PM
I would sure like to know what was in writting regarding the warrents. Unless the banks fouled up and explicitedly agreed to an unlimited holding of the warrents then they should be in federal court on Monday to force the return. I think this would cause the BO-Democratic administration to fold in short order unless they chose to endure the radically bad publicity from dragging it out in public.
Do the banks have the cajones to play hardball?
Hootowl on June 9, 2009 at 7:52 PM
Hootowl on June 9, 2009 at 7:52 PM
The terms and language of the warrants varies between the banks. There are a couple of different versions out there and there are plenty of write ups on the various settlements made already for TARP warrants in the public domain. Read up and you will understand why the governement is pausing on this.
lexhamfox on June 9, 2009 at 8:14 PM
Let’s see. They took the bank into a room, strapped it to a board, tilted it backwards, and poured money down it’s nose until it couldn’t take anymore and agreed to the buy-ins.
They were money-boarded!
Does Code Fink know about this? What about Nancy Belushi? Barney Rubble? Harry “Nevada Thin” Reid? Keith the Worst Sportscaster in the World? Chris “Kringle Tingle” Matthews?
CO2MAKER on June 9, 2009 at 8:17 PM
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