Banks can repay TARP, but Treasury keeps warrants

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:

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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.

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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):

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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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David Strom 6:00 AM | April 26, 2024
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