Banks can repay TARP, but Treasury keeps warrants

posted at 2:14 pm on June 9, 2009 by Ed Morrissey

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?


Related Posts:

Breaking on Hot Air

Blowback

Trackbacks/Pings

Trackback URL

Comments

Don’t be too happy . . . Obama and his Marxist regime will never relinquish power of any significance.

rplat on June 9, 2009 at 2:16 PM

It’s official.

This administration is corrupt.

Skywise on June 9, 2009 at 2:18 PM

Tim Geithner intends to deploy it to assist other firms, including some that have already received TARP funds.

And so the cycle continues. Force money down one bank’s throat, they regurgitate it, then Timmy-Toot-Toot forces it down another’s. Pass the Pepto!

JackFromBrooklyn on June 9, 2009 at 2:18 PM

Did you mean to say “that most if not all of them needed the support in the first place”?

B26354 on June 9, 2009 at 2:20 PM

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.

Then why hold the warrants?

AUINSC on June 9, 2009 at 2:20 PM

ACORN is now eligible for $68 Billion in TARP loans

CMonster on June 9, 2009 at 2:20 PM

How can Treasury keep the warrants? If the money is all fully repaid, doesn’t that end any Fed interest in the banks (beyond the usual Fed oversight)?

JadeNYU on June 9, 2009 at 2:20 PM

TARP: The new, modern version of leg irons.

BobMbx on June 9, 2009 at 2:21 PM

TARP will be hence forth known as Teachers Asset Relief for Pensions.

WashJeff on June 9, 2009 at 2:21 PM

These institutions received the funds only a few months ago, and the rapidity of their repayment demonstrates that most if not all of them needed the support in the first place.

Ed-

Did I read that wrong? Wouldn’t it mean that they didn’t really need the money in the first place?

Joe Caps on June 9, 2009 at 2:22 PM

Sure is a nice bank you have there, sure would hate to exercise these warrants on you. Capiche?

How about you provide a few million in very low interest loans to some union officials and ACORN reps that we know, in return we won’t use these warrants we still have.

Bishop on June 9, 2009 at 2:22 PM

How can Treasury keep the warrants? If the money is all fully repaid, doesn’t that end any Fed interest in the banks (beyond the usual Fed oversight)?

JadeNYU on June 9, 2009 at 2:20 PM

Thats a great question. Sounds like the Treasury is double dipping here. It seems analagous to you paying off your mortgage, but the bank keeps the deed until you buy it back?

Accountants? Anyone?

BobMbx on June 9, 2009 at 2:25 PM

If they repay the money, will they get hit with big penalties like TCF Bank did?

Knucklehead on June 9, 2009 at 2:25 PM

Sure is a nice bank you have there, sure would hate to exercise these warrants on you. Capiche?

How about you provide a few million in very low interest loans to some union officials and ACORN reps that we know, in return we won’t use these warrants we still have.

Bishop on June 9, 2009 at 2:22 PM

Sure god, whatever you want. Thank for your kind offer most merciful god. Peace be because of you.

WashJeff on June 9, 2009 at 2:26 PM

Then why hold the warrants?
AUINSC on June 9, 2009 at 2:20 PM

Because private business and citizens can’t be trusted to do things correctly. Duh.

Idi Ogabe Dada is now in charge of the nation, the Republic has been replaced by a banana.

Bishop on June 9, 2009 at 2:26 PM

Did I read that wrong? Wouldn’t it mean that they didn’t really need the money in the first place?

Joe Caps on June 9, 2009 at 2:22 PM

Bingo, Ed misspoke.

Most accounts being passed around now say that Paulson wanted to bail out CitiGroup and couldn’t sell that one to everyone, so he gave money to *all* the banks to cover up the fact that CitiGroup was in serious trouble.

The banks were willing to play along until the AIG bonus stuff hit the fan and both Congress and the Obama Administration decided they were going to start dictating terms to anyone who’d taken TARP funds.

teke184 on June 9, 2009 at 2:26 PM

Government must stay out of all private enterprise…..I know that is hopeful thinking with this administration……I am missing W already, at least in his heart he thought he was doing right by the country.

When are we going to get some pols that are not corrupt and actually govern for the people.

MCW on June 9, 2009 at 2:27 PM

And what a surprise, the camel’s nose stays tucked under the tent.

(Poor choice of words??? Hmmm… too bad)

red winger on June 9, 2009 at 2:27 PM

TARP= Thanks Acorn! Really ‘Preciate it!

SouthernGent on June 9, 2009 at 2:29 PM

Warrants? This sounds like a job for Sheriff Joe.

Buy Danish on June 9, 2009 at 2:31 PM

Warrants are the right to buy shares at a specified price. If the strike price of the warrant is higher than the current market price, there’s no reason not to just buy on the market. They typically have a lifespan of a few years…and quite a few quietly expire at the end of their term.

cthulhu on June 9, 2009 at 2:31 PM

TARP=
Targeted
Acorn
Revenue
Program

UNREPENTANT CONSERVATIVE CAPITOLIST on June 9, 2009 at 2:31 PM

Once you let the bugs in you can never get them out.

They want to keep the warrents so they can still strongarm the banks!

Old Dog on June 9, 2009 at 2:32 PM

Great Plan.

1 Get the media to report “banks are paying tarp money back with interest”. Good PR.

2 Retain warrents / control of those banks

3 Use the repaid money to gain control of other institutions

repeat, repeat, repeat

marklmail on June 9, 2009 at 2:33 PM

cthulhu on June 9, 2009 at 2:31 PM

True…and yet that still doesn’t explain why they are still holding them.

AUINSC on June 9, 2009 at 2:34 PM

If it is proven Paulson forced the banks to take money from fed which they don’t want and don’t need, how is he not testifying in front of congress or sitting his butt in jail?

Sir Napsalot on June 9, 2009 at 2:34 PM

$700 billion to GM and Chrysler. $10K tax credit for the purchase of these vehicles.

Oil Can on June 9, 2009 at 2:35 PM

There is NO WAY it is legal for the Fed’s to keep the warrants once the loans are paid back. Any bets to the black mail that will happen even with the loans paid back???
Once the Fed’s get their fingers into ANYTHING you have to cut the fingers off to get the Fed’s to let go of control!!

BlueWing on June 9, 2009 at 2:36 PM

What a disgrace. Scary what the US will looklike come election time in 2010.

How anyone can justify what is going on, is beyond me.

rlongstrat on June 9, 2009 at 2:38 PM

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.

Yes, Geithner was very explicit in the idea that he believes the TARP to be a permanent slush fund at the dispoal of Treasury to invest and recoup on into perpetuity. This is the most un-Constitutional single claim I think I have ever heard anyone in the federal government ever make. I cannot believe that Senators and COngressmen didn’t haul Geithner in front of Congress and demand his resignation for even offering this insane interpretation of TARP.

It’s interesting how the “Constitutional scholar” in the White House seems to shred that document at every turn, possible. I feel like indicting Harvard Law – also none of whom have spoken out about the unbelievably un-Constitutional ideas of their affirmative action alumnus. Pathetic. Truly.

progressoverpeace on June 9, 2009 at 2:39 PM

Surely the bank would pay the money back and negotiate on the warrants. You can’t deal with this terrorist government in good faith.

seven on June 9, 2009 at 2:41 PM

…and there lies the rub.

These big government fascists never give back anything. That’s why tax refunds were driving them insane. Once a tax is in place, it is never taken away and once money is in their control it is theirs to do whatever they wish.

How else does a mechanism that creates no wealth or income feed?

Big party at ACORN tonight!!!!

Hening on June 9, 2009 at 2:43 PM

There is NO WAY it is legal for the Fed’s to keep the warrants once the loans are paid back. Any bets to the black mail that will happen even with the loans paid back???

BlueWing on June 9, 2009 at 2:36 PM

That’s exactly what they’re doing.

What can the banks do? Sue? Isn’t keeping the warrants seizing property without due process?

Daggett on June 9, 2009 at 2:50 PM

Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power.
– Benito Mussolini

MB4 on June 9, 2009 at 2:52 PM

The keystone of the Fascist doctrine is its conception of the State, of its essence, its functions, and its aims. For Fascism the State is absolute, individuals and groups relative.
– Benito Mussolini

MB4 on June 9, 2009 at 2:54 PM

1. I find it funny, that these are the same people that want to outlaw the bank pracitce of prepayment penalties, but won’t let banks pay back money.

2. $68 Billion? At the time the banks got this money that seemed like a whole heck of alot of money. Now, I had to read it twice to make sure I didn’t miss a zero.

3. How can they say that this is “the obama admins” financial rescue plan? All this tarp stuff happened while Bush was in office. I suppose the banks that remain strong were under the obama plan, and the banks that fail were under the Bush plan.

GOP004 on June 9, 2009 at 2:55 PM

Administration officials say they have no intention to exercise the warrants, which would give the government ownership stakes in the banks.

Considering the frequency with which this President and administration reverse themselves, I would feel better if they had stated an intention to exercise them.

Tonus on June 9, 2009 at 2:56 PM

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.

As if I didn’t suspect already, this convinces me this Administration has little to no idea about the basic nuts and bolts of business.

The accounting on this is something that is going to distort the bank’s financial statements. If the requirement for accepting the TARP loan was to issue warrants, then the accounting would be a debit to Cash and a credit to some obligation account held on the books. Fine.

However, if the Government is not going to release the warrants, then when the bank pays the money back it will credit cash and debit…what? Expense? Then that distorts the P&L statement and it’s not really an expense to begin with. Debit an asset? What asset is the bank purchasing? Really nothing that GAAP would recognize as an asset. A contra-liability? Again, I don’t see how GAAP would permit such a thing.

Just like the Administration deciding to chuck years of bankruptcy law out the window to pick a winner, this kind of seat-of-the-pants deal making is very dangerous to the business climate. GAAP exists to create consistent and predictable rules for everyone. Having a core concept simply dismissed by the Administration is a very dangerous thing to have happen.

JohnTant on June 9, 2009 at 2:57 PM

Yes, we can trust them not to exercise the warrants, because after all, when has this administration ever used power it didn’t have?

We become strong, I feel, when we have no friends upon whom to lean, or to look to for moral guidance.
– Benito Mussolini

MB4 on June 9, 2009 at 2:57 PM

“Political correctness is a doctrine, fostered by a delusional, illogical minority,and rabidly promoted by an unscrupulous mainstream media, which holds forth the proposition that it is entirely possible to pick up a turd by the clean end”

R. J. Wiedemann
LtCol. USMC Retired

Eagles Dominion on June 9, 2009 at 2:58 PM

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.

Translation: Citigroup is still dead.

rockmom on June 9, 2009 at 3:00 PM

“How can Treasury keep the warrants? If the money is all fully repaid, doesn’t that end any Fed interest in the banks (beyond the usual Fed oversight)?”

This administration seems to have no problem thumbing its nose at the rule of law and property rights. Two (of many) things that distinguish this country from the oligarchies. State-owned businesses and resources are the hallmarks of Marxism – look at Russia and Venezuela for examples. This poster’s question goes right to the heart of this how this administration operates: strong-arm tactics to force participation by bondholders at the risk of public attacks; Black Panther thugs who get a “pass” from Holder; and the belief that justice should not be blind, but rather “empathetic”. All this points to an administration mired in Chicago-style politics and wrapped in a blanket of Saul Alinsky-type hatred for America. Constitution? We don’t need no stickin’ Constitution!

lovedinthekeys on June 9, 2009 at 3:00 PM

Step 1. TARP
Step 2. ???????
Step 3. GOVERNMENT R TEH WINNARS!!!! LOL

LibTired (KO) on June 9, 2009 at 3:03 PM

Will the “warrant retention” issue be spoken about in any form in any media?

marklmail on June 9, 2009 at 3:05 PM

Yeah… We expected anything different?? Until the SCOTUS and other courts start applying some legal muscle to rein this administration in, I look for more of this to continue.

These guys have a playbook, folks, and it contains all sorts of things that we would heretofore never have imagined. Buckle up for a long ride.

mncons72 on June 9, 2009 at 3:14 PM

I feel like I’m in the Twilight Zone- this is happening in America?

Jay Mac on June 9, 2009 at 3:16 PM

I wonder how many of these so-called “stable” banks still haven’t written off all the bad debt on their books. Or for that matter, how leveraged they are with commercial real estate.

Just redefine the meaning of “stable” and all is well, so sez Dear Leader.

TheMightyMonarch on June 9, 2009 at 3:19 PM

The warrants, another name for Call options or LEAPS, are just another lasso around the neck of an already hogtied beast.
Ever since the National Banking Act of Civil War vintage, large banks have held their charter at the convenience of the Federal Government. That’s why they’re called “National” Banks! That means that if they don’t cooperate with whatever crusade the Feds happen to like this week, life can be made VERY uncomfortable for them.
Mergers, acquisitions and branch applications can be “slow-tracked” or not approved at all. Or eventual approval can be delayed until after competitors have opened their branch across the street. Exams can be made VERY difficult and they can be repeated over and over and over until something can be found or created that puts bankers in jail. Exam reports can be leaked to well placed business media types who will know what to do with them.
How do you suppose the Treasury Secretary was able to “force” TARP money down their throats, if not by threats of making their lives a regulatory hell on earth? This is the way big government and big business relate to each other at this level.
Trust me, I’ve been in and around the banking and investment business most of my adult life and I have clients and very good friends among both bankers and regulators. This is normal!
Any time the Federal government cares to steer credit toward one group or another, or away from one group or another, there are a thousand different channels to get the message to the right person without leaving the smallest fingerprint behind. Every banker in the world has his testicles softly resting in the palm of some despot’s hands, whether it’s Uncle Sam or some other Prince. When the Prince sneezes, the banker jumps and his eyes bug out. It’s been that way since the days of the Fuggers and the Rothchilds and the Medici and it’s not going to change any time soon. The fact that these guys are allowed to appear in public without a Treasury Department “Minder” is a sign of how well they’ve taken to the invisible leash around their neck.

Lew on June 9, 2009 at 3:20 PM

O is NEVER going to cede one inch of power that he’s grabbed.

Tyrants never do.

wildcat84 on June 9, 2009 at 3:24 PM

Administration officials say they have no intention to exercise the warrants, which would give the government ownership stakes in the banks.

It would take an extreme crisis for them to change their stance on this and get away with it.

Ladies and Gentlemen, I introduce you once again to the Cloward-Piven Strategy:

Strategy for forcing political change through orchestrated crisis

the “Cloward-Piven Strategy” seeks to hasten the fall of capitalism by overloading the government bureaucracy with a flood of impossible demands, thus pushing society into crisis and economic collapse.

Read the article to see the goal and the connections to ACORN, George Soros, etc.

http://www.discoverthenetworks.org/groupProfile.asp?grpid=6967

Daggett on June 9, 2009 at 3:26 PM

Calling Mr. Gettlefinger, your check is ready. As far as the warrants go, the banks should get out from under them asap and consider themselves lucky to be rid of the govt. This was illegal in the first place. How is it that the govt can own something it regulates? Bring on the lawsuits.

Kissmygrits on June 9, 2009 at 3:28 PM

Ed, the governement should keep the warrants and let the banks repurchase them at fair market value. That was and remains the plan but the governement has control over the price and who it sells the warrants to. The warrants are options and the government would be idiotic not to retain them until they could receive a better price for the people’s investment. The banks involved have said that they want to do this and I recall the public wanting something in return for the huge expenditure in helping out these vital institutions. Moreover the warrant structure is working as intended. Just because you have an option doesn’t mean you have to sell it as soon as possible… at least for these banks the plan worked. Get over it.

JohnTant on June 9, 2009 at 2:57 PM

What is out of line with GAAP here? This isn’t unlike any venture debt issue. There are NO cash entries with warrants unless they are bought or sold and the other side goes to capital not P&L.

lexhamfox on June 9, 2009 at 3:31 PM

I gotta say, the thing that caught me the most was this from the President, “I’ve said repeatedly that I have no interest in managing these banks — or running auto companies or other private institutions, for that matter,” Mr. Mr. Obama said. “But I also want to say: the return of these funds does not provide forgiveness for past excesses or permission for future misdeeds.(emphasis mine) It is critical that as our country emerges from this period of crisis, that we learn its lessons; that those who seek reward do not take reckless risk; that short-term gains are not pursued without regard for long-term consequences.” From the WSJ

He isn’t giving up control

freemarketlibertine on June 9, 2009 at 3:32 PM

When you got ’em by the balls (warrants), their hearts and minds will follow.

GarandFan on June 9, 2009 at 3:32 PM

Lew on June 9, 2009 at 3:20 PM

Interesting stuff. But even though you say the gov’t has always had the bankers by the short hairs, in this case, by continuing to hold the warrants, and not reaching an agreement with the banks on their value, I also think the gov’t may also be able to continue to control executive pay at the banks, and those other things that they became subject to when they “took” the original TARP money. In other words, the Obama admin. is tugging. I wonder just who will get control of what bank, and what community will suddenly find itself the beneficiary of unexpected bank largess.

JiangxiDad on June 9, 2009 at 3:37 PM

So the banks got TARP so they would start lending… they still are not lending. So they are giving TARP back and are still not lending. I am glad the gubment fixed this issue.

jharada on June 9, 2009 at 3:40 PM

lexhamfox on June 9, 2009 at 3:31 PM

Who are the parties to the warrants? Aren’t they the government and the bank?

Since the bank accepted money from the government, the offset has to be recorded somewhere. Then if the option is exercised the issuance of the stock proceeds normally and wherever the warrant is recorded is debited out.

However, if the bank is repaying money but cannot reverse the original transaction, what would be the GAAP-compliant offset?

Also, as I have some experience with venture debt, a typical deal would have a issuance of a preferred stock series in exchange for cash. However, suppose the company wanted to retire that stock series and the stockholder was willing to accept cash payment but refused to relinquish control of the stock. What would be the GAAP-compliant entry for that situation?

JohnTant on June 9, 2009 at 3:43 PM

Daggett on June 9, 2009 at 3:26 PM

I gotta say, the thing that caught me the most was this from the President, “I’ve said repeatedly that I have no interest in managing these banks — or running auto companies or other private institutions, for that matter,” Mr. Mr. Obama said.

freemarketlibertine on June 9, 2009 at 3:32 PM

Something tells me that that control over those private institutions that we’re now seeing come to pass is what he wanted all along and he was boldly and blatantly lying straight to our faces the whole time.

Prove me wrong obamatons! In light of keeping these warrants despite repayment of the loans! Prove me wrong! I dare you too! I want you too! Why? Because I woke up today and I felt I was in Fascist Italy or Nazi Germany thats why, and I want to prove otherwise if at all possible. /rant

Chaz706 on June 9, 2009 at 3:45 PM

I didn’t mean to strike on the want… but I really do want you to.

Chaz706 on June 9, 2009 at 3:46 PM

Attention all American CEOs are you learning anything from this?

Charlie Elk on June 9, 2009 at 3:56 PM

Chaz706, you need to read the full quote my friend. This is an example of how Obama approaches everything. Set up the straw man, and then knock it down. If he says that is not what he wants, it’s what he really does want in the long run. Whether TARP, GM, Chrysler, the banks, Dairy Queen restaurants. It is frightening stuff, but we need to be able to attack his arguments on the merits.

freemarketlibertine on June 9, 2009 at 3:58 PM

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.

Then why hold the warrants?

AUINSC on June 9, 2009 at 2:20 PM

What exactly is the “warrant” that they are referring to?
I am unfamiliar with this term.

Susanboo on June 9, 2009 at 4:01 PM

On Rush today, he said the banks paid back the tarp money, with interest.

This keeping warrants has to be illegal. God this just burns me. Can’t we take up a lawsuit against Obama, and his administration, for violation of contract law, violation of the Constitution, breaking oaths of office, extortion, etc…..?

Surely we have some power here, and the courts are obligated to the Constitution. We can’t sit here, and take this, and our only recourse, to comment, and gripe about it.

capejasmine on June 9, 2009 at 4:10 PM

We saw the SCOTUS take up the Chrysler issue, it’s a matter of there being a disparate impact on an individual from the application of TARP. Its coming… just have to wait

freemarketlibertine on June 9, 2009 at 4:14 PM

As I understand it, a warrant is actually an option to purchase (shares). The warrant is property in its own right, and can be sold/traded.

A warrant (like any other option) has an expiration date, and if it’s going to be exercised, it must be exercised before the expiration date.

alwyr on June 9, 2009 at 4:14 PM

freemarketlibertine on June 9, 2009 at 3:58 PM

I read your quote friend, and the way I understood it is that Obama wants to maintain control now (despite his previous words) and won’t give it up. You were probably meaning to say that it was his intention all along.

If I got that wrong or you feel I got it wrong, I apologize.

My take is that he wanted that control all along. Your quote came up and I needed to rant after hearing the news on this thread. I feel like I’m in Nazi Germany now after this brazen takeover of these industries. What’s a man to do?

I feel like adopting the motto at Ace’s site… but that’s kind of illegal.

Chaz706 on June 9, 2009 at 4:14 PM

The warrant is essentially an option. In this case the governement has the option to purchase banks common stock at a certain fixed price. Depending on the language of the warrant, warrants can be transferred or sold like any other option.

JohnTant on June 9, 2009 at 3:43 PM

It would work the same way as a commercial warrant… they don’t take the place of cash… in most cases they are in addition to cash. Here, like with a bridge loan, the bank issues the warrant at a fixed price. They pay back the loan… that is the cash entry. The warrant is accounted for and shows up on the cap table until it is cancelled by the holder or converted to shares (not always preferred shares… I suspect the TARP warrants are for common stock). If they retire the series they have to reissue a new warrant.

The idea is that if the borrowing firm becomes successful… the warrant holder & lender shares in the increase in value of the cap chart. The cash loan itself is separate.

lexhamfox on June 9, 2009 at 4:15 PM

Surely we have some power here, and the courts are obligated to the Constitution. We can’t sit here, and take this, and our only recourse, to comment, and gripe about it.

capejasmine on June 9, 2009 at 4:10 PM

The courts (SCOTUS in particular) can kneecap some points of law and agenda but that’s it. If any impeachment is to be had, we’d have to control the senate… I don’t see that happening in 4 years… much less (and God forbid) 8. What with all these shenanigans (the Minnesota recount comes to mind) and ACORN getting billions hand over foot… I’m not sure if a legal recourse to remove him from office will actually exist in a few years.

Speaking of which… Why am I in this hand basket and where the Hell am I going?

Chaz706 on June 9, 2009 at 4:17 PM

Prove me wrong obamatons! In light of keeping these warrants despite repayment of the loans! Prove me wrong! I dare you too! I want you too! Why? Because I woke up today and I felt I was in Fascist Italy or Nazi Germany thats why, and I want to prove otherwise if at all possible. /rant

Chaz706 on June 9, 2009 at 3:45 PM

Wake up Chaz… it’s America and these kinds of transactions happen all the time. There is nothing illegal here. The idea was to hold the warrants and sell them at a profit for the benefit of the nation. That was the intention of issuing the warrants in the first place so TARP wasn’t a straight forward give away.

lexhamfox on June 9, 2009 at 4:19 PM

Chaz it is fine my friend, we all need a little rant time.

freemarketlibertine on June 9, 2009 at 4:23 PM

This whole thing is an exercise in unintended consequences. The money was never used to fix bad mortgages. The banks were told to go on a bank shopping spree, and they did, resulting in a flurry of mergers of large banks.

Then, Obama came to town, and decided that he’d start changing the way banks operate. All of a sudden, banks start to worry. Geithner gives them a financial goal to meet before they can repay the money and get out from under The Man’s thumb. So what do they do? Start raising fees, slashing staff, and cutting costs and generating revenue everywhere they can. They’re not any more stable than they were. They just did a fire sale to raise the money to pay off Uncle Sam.

hawksruleva on June 9, 2009 at 4:23 PM

lexhamfox on June 9, 2009 at 4:15 PM

Is your argument then that the warrants were issued independently of any TARP funds received?

I’m not sure that’s comforting either. :)

JohnTant on June 9, 2009 at 4:25 PM

Great – so if someone repays the TARP money, we loan it out again to somebody who might NOT repay it. Eventualy TimmyG will bet on enough losers that the money isn’t recovered.

Or worse, the Executive branch gets a permanent piggy bank with billions of dollars in it.

hawksruleva on June 9, 2009 at 4:25 PM

My bet would be on the permanent piggy bank…

freemarketlibertine on June 9, 2009 at 4:29 PM

JohnTant on June 9, 2009 at 4:25 PM

They are part of the loan agreement but independent of the loan pay down. If the loan works… the borrower survives and prospers… the lender gets the added benefit of the assets increase in value over the value at the time of the loan. It’s vanilla!

If the governement wanted to control the banks they could have merely purchased the common stock at a fraction of the costs involved with TARP. They did nto want that. They wanted to help the banks out but provide the loans with a commercial component which would benefit tax payers.

Other banks involved with TARP might not do so well and the warrants might not be commercially viable.

Go back and look at news items when TARP was constructed… this is what everyone insisted on when the loans were made. It had to benefit the tax payers if the banks prospered on the back of ‘free’ government money they could not get anywhere else. I don’t know why Ed and others here are up in arms over the warrants not being cancelled or sold back at face value. I’d like someone to explain why the tax payers should not benefit from helping out Wall Street.

lexhamfox on June 9, 2009 at 4:36 PM

I hope at least one of the banks has the balls to go to court over the extortion. As of today only a few minor owners of Chrysler have shown any courage in the Chrysler/GM extortions.

burt on June 9, 2009 at 4:40 PM

Wake up Chaz… it’s America and these kinds of transactions happen all the time. There is nothing illegal here. The idea was to hold the warrants and sell them at a profit for the benefit of the nation. That was the intention of issuing the warrants in the first place so TARP wasn’t a straight forward give away.

lexhamfox on June 9, 2009 at 4:19 PM

Then why keep the banks from paying back the TARP money? You can’t sell Warrants w/expiration dates cause they’re only good for so long anyhow.

If the Warrants were given to the banks independent of TARP money then what were the banks given in return? I say that because in order for a contract to take place, goods, services, or cash have to be exchanged on both sides (party A gets something from Party B in exchange for getting something from Party A… that’s a fundamental point of contract law.). So what did the banks get if the Warrants were independent of TARP?

And if the Warrants aren’t independent of TARP cash, then (a) why does the government have the right to keep the Warrants if the TARP money is repaid? Furthermore (b) does this take into account the fact that the banks had this money foisted upon them in the first place?

Chaz706 on June 9, 2009 at 4:41 PM

Financial soundness, my right big toe.

Three reasons for giving the money back: A, I, and G.

cackcon on June 9, 2009 at 4:42 PM

JiangxiDad on June 9, 2009 at 3:37 PM

I’d look for a lot of easy credit flowing into unionized businesses and so-called “green” showcase projects and sectors. These are the two big socialist crusades that Obama owes to his hard left supporters over at Kos.
Like Roosevelt in his time, Obama has to find a way to make the numbers add up on his mountain of promises and the only way he can make that happen is by stealing from corporate America on a very broad basis. Roosevelt did it by forcing corporations to take on health care and a raft of other paternalistic social benefits. Obama will do it with just the raw muscle of ACORN and the intimidation of capitalists – the Chicago Way.
Socialism always fails whenever anybody gets stupid enough to actually try it, because there simply is no economic system in the entire experience of human history that is creative and productive enough to carry the load of all those unproductive people generated by the lack of incentives. And in addition if you really go all the way to state ownership of the means of production, the bureaucratic rigidity and comic opera inefficiency from central control just makes the problem even worse.
Fascism however, seeks that middle ground of controlling the means of production through intimidation and thuggery rather than outright ownership. The idea is that if you scare these “Captains of Industry” enough they’ll do what you want but be really efficient about it, so the numbers might actually work.
The problem with this idea is that once you start down the road of thuggery and intimidation, you can’t limit it to just “Captains of Industry”. Sooner or later, they’ll get to the rest of us. Its no coincidence at all that George Orwell and Ayn Rand are seeing a sudden explosion in book sales. They were just too early!

Lew on June 9, 2009 at 4:43 PM

I should have said minor bond

owners.

burt on June 9, 2009 at 4:46 PM

It’s official.

This administration is corrupt.

Skywise on June 9, 2009 at 2:18 PM

Did you just wake up from a coma? It’s been officially corrupt since about mid-afternoon on January 20th.

I’d like someone to explain why the tax payers should not benefit from helping out Wall Street.

lexhamfox on June 9, 2009 at 4:36 PM

For banks that ask for it, repayment of the warrants is – er – “warranted”. But for the banks that had it forced on them, why should they have to pay any de facto interest or penalty? Besides, the concern is not nearly so much the extra money the banks have to pay as it is the “power lien” Obama’s team is able to place on the banks, so they can still push the banks’ management around. I assume that plays well with the class envy crowd, but I — who am living okay but have roughly my net worth in a pickle jar full of nickels and pennies — find it appalling for the President of the United States to be running around making American citizens “eat a bug”.

RegularJoe on June 9, 2009 at 4:49 PM

Lew on June 9, 2009 at 4:43 PM

Well said, again. Care to cut to the chase? What’s gonna happen? :)

JiangxiDad on June 9, 2009 at 4:53 PM

Go back and look at news items when TARP was constructed… this is what everyone insisted on when the loans were made. It had to benefit the tax payers if the banks prospered on the back of ‘free’ government money they could not get anywhere else. I don’t know why Ed and others here are up in arms over the warrants not being cancelled or sold back at face value. I’d like someone to explain why the tax payers should not benefit from helping out Wall Street.

lexhamfox on June 9, 2009 at 4:36 PM

I will have to respectfully disagree with you. If the TARP money is being paid back in full, with interest, the tax payers aren’t out any of that money. It is my understanding, that this money was forced on the banks in the first place, and for a time, the banks wanting to pay it back, was refused by Geithner…and I’m sure he got his orders from someone on that.

Obama wants to try a new stimulus, knowing full well the first one isn’t working. We can’t spend our way out of this debt now…and Obama just wants to throw more money, we don’t have, at the problem. This tells me, this is what he wants. This is the aim, the goal. To essentially break the back of the economy, and re-create it, in his image. A god if you will, but not a very bright god.

capejasmine on June 9, 2009 at 4:54 PM

This money wasn’t spread around enough, we are going to put it back out there for companies that are going to go bankrupt after we give it to them

Tremmy on June 9, 2009 at 4:56 PM

You can’t sell Warrants w/expiration dates cause they’re only good for so long anyhow.

Chaz706 on June 9, 2009 at 4:41 PM

That’s got to be the single, most retarded statement I’ve seen.

progressoverpeace on June 9, 2009 at 4:57 PM

That’s got to be the single, most retarded statement I’ve seen.

progressoverpeace on June 9, 2009 at 4:57 PM

In order to sell Warrants you have to have buyer.

A warrant (like any other option) has an expiration date, and if it’s going to be exercised, it must be exercised before the expiration date.

alwyr on June 9, 2009 at 4:14 PM

If a Warrant has an expiration date you’re going to have to either (A) hold it until it expires. That kind of flies in the face of the argument that we wanted to sell the Warrants to make a profit in the first place. So (B) we have to sell it for a lower price because of the expiration date. The only people interested in such a Warrant would be (1) someone who would want to hamstring a back by pulling on their CEO’s strings or (2) the bank itself… which already had to pay penalties and interest on the TARP money they were forced to borrow in the first place.

Do you see my argument now?

Furthermore, what are the Warrants worth? Is there some material value (besides the TARP money. Key point here.) of the Warrants? If the bank wants to buy them back… what’s the price? That would have to be determined at the time of contract or this whole Warrant business is Null and Void. If the value of the Warrants was tied to the TARP money, then they should be given back to the bank when the bank repaid the TARP cash. If they were independent of TARP, then what did the banks get in return for selling the Warrants? If they were just made out of thin air (which is the only other possibility) then the whole legitimacy of this TARP business never existed.

Chaz706 on June 9, 2009 at 5:10 PM

Obama, the Great Immorality of our time, is trying to foster as much crisis as he can to gain as much control and power as he can.

beatcanvas on June 9, 2009 at 5:19 PM

Chaz706 on June 9, 2009 at 5:10 PM

Evidently, you know nothing about options – specifically equity options, here. There are many methods of evaluating their value.

In the end, you can take bids for them and decide whether you want to sell them at those prices, but your argument about expiration dates is crazy. All options have expiration dates, and Euro-styoe options don’t allow for exercise, except at expiration. But they are all fairly easy to value (there are many theoretical pricing models) and one can find markets for options on just about anything.

I’m not sure what point you’re trying to make, but your ideas about options (and, thus, warrants) are just misguided and incorrect.

And, BTW, TARP has always been illegitimate. The fact that Geithner now considers TARP a slush fund that will run in perpetuity makes it something far worse.

progressoverpeace on June 9, 2009 at 5:20 PM

capejasmine on June 9, 2009 at 4:54 PM

The government is out of pocket because the US has to borrow the cash in the first place. This was never intended to be a handout. The loan did not have a commercial interest component. I can assure you that Morgan Stanley and most of the other institutions which have since been rechartered as banks absolutely did need the money. It’s BS that the money was forced on them. Look at the rise in assets since the worst of the banking crisis has passed. TARP helped give everyone time to settle, work through their bad assets and liquidity, and recover rater than close down because they had no viability in September of 2008. It was effectively a bridge loan to get them through a period when their assets were in the tank. The fact that they can pay back the loans is good for everyone. There is still risk that the other parties not yet able or fit enough to pay the funds back will have worthless warrants. The whole purpose of the warrant is to keep it and sell it when it is worth the maximum value. The increase in value when the warrants are sold or exercised goes to the US current account… it helps offset the deficits you hate so much. I don’t get you being so vexed over the US keeping the warrants. Explain why the US should not get something back for adding it’s capital to the banking system during a crisis. This isn’t Obama…. this was the intention of the Congress, the Bush Administration, and the Fed!

Chaz.. go look up what a warrant actually is. The value is tied to share prices. It’s a good asset if the share prices go up. that’s why the US won;t sell them while the stock prices for these firms is still historically low. Would you?

lexhamfox on June 9, 2009 at 5:23 PM

I don’t get you being so vexed over the US keeping the warrants.

Because the federal government should not be holding equity, or warrants, in any private companies.

Explain why the US should not get something back for adding it’s capital to the banking system during a crisis.

The federal government is not a hedge fund. Do you understand that? The federal government is not allowed to just “invest” any money it has, can get through taxes, or can print. That is not how the US was structured.

Your argument about the federal government making a profit is insane. The primary task of the US government is to protect the rights of American citizens on American soil, not getting its hands into private business and making money.

This isn’t Obama…. this was the intention of the Congress, the Bush Administration, and the Fed!

lexhamfox on June 9, 2009 at 5:23 PM

I don’t care who subscribes to this, it is un-American and un-Constitutional.

progressoverpeace on June 9, 2009 at 5:29 PM

Jack Kemp thought it was a good idea and he was upset that Republicans didn’t add their full support to it when it came out.

lexhamfox on June 9, 2009 at 5:31 PM

ACORN is now eligible for $68 Billion in TARP loans

CMonster on June 9, 2009 at 2:20 PM

I am with you and all the others who think this is going to go to all the nuts.

OT- Foopie just pled NOT GUILTY in the nice Court in NY. God save us!

freeus on June 9, 2009 at 5:36 PM

The TARP dilemma reminds me of the Hotel California line:
“You can check any time you like, but you can never leave.”

waterat31 on June 9, 2009 at 5:37 PM

progressoverpeace on June 9, 2009 at 5:29 PM

Unconstitutional? How? You are saying the US can only sell land or other assets at the original purchase price or less? The fed should not charge interest?

lexhamfox on June 9, 2009 at 5:42 PM

This is the next chapter.
Remember the few intelligent Govs.( Mostly Reps) that didn’t want Stimulus money because of the strings attached and were overridden by their Legislators (Mostly Dems). If this is what they are doing to banks get ready for the States kickbacks, Acorn will be out in full force collecting.I’m glad I am old and won’t see the destuction of the greatest nation on earth. So sad.

concernedsenior on June 9, 2009 at 5:49 PM

Unconstitutional? How? You are saying the US can only sell land or other assets at the original purchase price or less? The fed should not charge interest?

lexhamfox on June 9, 2009 at 5:42 PM

No. I am saying that the US government is not built to be in the business of making money. That much should be clear. The argument that the federal government might make money off of some transaction is not an argument that stands Constitutional scrutiny. What is so difficult to understand about this?

But, you have your mind set, so let me put it to you this way, the warrants were extended to the federal government for the sole purpose of providing some defense of the TARP funds that were given to them. If the TARP funds are returned, then there is no longer any reason for the feds to hold onto the warrants – except if the feds decide to go rogue and just act like a big trading house, which doesn’t seem to bother you at all.

Further, with respect to TARP, itself, I am saying that Congress is not allowed to delegate any of its responsibilites to other branches, even though it might want to. This is the basic difference between a Constitutional structure and a Democracy. Even if all agree to violate the Constitution, that doesn’t make it allowable in the Consitutional setting. Even if 100% of the people want something, they are still constrained by the Constitution. This idea has been lost, these days, as we have slipped into ochlocracy, in general, and the rule of incompetent fools in the particular.

progressoverpeace on June 9, 2009 at 5:52 PM