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  • TARP and Stress Tests: Now Can Banks Return the Money?

    The results aren’t officially out yet, but it looks like 14 of the 19 financial firms subjected to “stress tests” by the Treasury Department passed their exams with flying colors. Now, the question is will they be allowed to return the money they borrowed from taxpayers?

    Many of them want to. But Treasury Secretary Timothy Geithner has been dragging his feet on the issue indicating that repayment might not be allowed for even healthy banks if the government doesn’t think that general economic conditions are favorable.

    That policy drew a firestorm of criticism. Here were firms wanting to pay back taxpayers, and they were being told they couldn’t? It looked especially tenuous as news got out that Chrysler would not be paying back its loans at all. A poll this week by National Media found 86 percent of Americans favor letting companies repay.

    Technically, the government doesn’t even have the power to prevent repayment. But as a condition of the loans, the government was given warrants for the purchase of stock in recipient firms. If those warrants aren’t relinquished, then it’s a lot harder for banks to repay.

    It seems that the government has a legal right to retain or exercise the warrants. But in so doing, it is preventing taxpayers from getting their money back. And – as TARP-indebted creditors of Chrysler now know, it ensures a big government hand in how each firm is run.

    In the face of this criticism of this no-payback policy, Secretary Geithner now has backed off somewhat. In an op-ed today, he indicated that firms passing the stress tests would be allowed to do so (presumably with warrants waived) if it shows it can raise capital on its own, without special government guarantees.

    This is welcome, allowing most healthy banks to become TARP-free. (Although the government would still be able to re-lend the cash to others). Still, why not go further? After all the hoopla over the stress tests, repayment should be welcome from any bank that passed.

    Geithner argues, in effect, that its better to be safe than sorry – even a stress test doesn’t guarantee there will be no problems in the future. Perhaps true, but that should be a decision for banks to make for themselves. Even more importantly, the sought-after safety comes at a cost, not just in terms of taxpayers dollars, but in lost private sector independence. Those are losses for which we certainly would be sorry.

    Posted in Economics [slideshow_deploy]

    6 Responses to TARP and Stress Tests: Now Can Banks Return the Money?

    1. Paul Agostino Wilmi says:

      once you let the goverment in your door you will most likely have a unwanted partner forever, is this the first act of the democratic congress in their subtle stlye of suppression of the American people?

    2. B Warren says:

      One should question, before letting bank presidents pay back their TARP funds, whether they can be trusted not to continue with the self-serving, irresponsible and abusive lending practices that got us into this situation in the first place, like junkies going back to their drugs. It seems unlikely given that their previous failures of judgement are now so well understood, but stranger things have happened. I would feel better if we instituted reasonable, rationale regulatory regime before we turn the banks loose again. Especially if their primary motivation is simply to regain their multi-million bonuses.

    3. Pingback: » Financial News Update - 05/07/09 NoisyRoom.net: “Extremism in the defense of liberty is no vice. Moderation in the face of tyranny is no virtue.” Barry Goldwater

    4. Pingback: Stress-Free Banks Should Be TARP-Free | The Right Opposition

    5. MAS1916 - Denver, CO says:

      This is all about control! Geithner and the President have wanted to keep their shares in financial institutions to influence future business decisions.

      This should be a warning to any business considering a future bail out!!

    6. Pingback: Morning Conservative Reading List - May 8, 2009 - AIP Blog - American Issues Project

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