Obama Administration and TARP 1 Reimbursement

TARP 1 is a case where the government forced the leading domestic commercial banks to do something that the well run banks didn't need or even want to do. But even though competently run, these banks had to take TARP 1 money to obscure the banks that took the money who really did need it.

Imagine if tomorrow one of the top ten domestic commercial banks comes out and states publicly two things.

A. It does not need/never did need TARP 1 and is giving it back.

B. It also recognizes that the TARP liquidity injection has not worked at all, therefor a better solution would be to allow healthy banks to compete for the market place.

The healthy banks of course would repay TARP1 money immediately and protest loudly if the government refused to take the money back.

The weak banks? They would be silent or stammering about how its a liquidity problem.

The public would get the hint really quick. The banks that got TARP 1 and needed it would fail- and the public would have had it up to their eyeballs with the entire bailout process. 60% of American registered voters no longer supported TARP I or a TARP II. The issue of the reinsurance costing far more than expected has wiped out TARP 1 funds anyway-as much as 38% more than originally thought.

It is time for the reinsurers- also known as AIG to pay up with their own investment pool instead of collateralizing taxpayer monies. AIG owes banks big. If AIG fails, several of Europe & China's biggest banks and re-insurer firms will collapse as well. It will send Europe and China straight into a severe recession. But it won't cost the American tax payer another $2 Trillion in public debt load. The cascade of bad American banks would be impressive to see failing. The rumor mill is 4 of the now 10 top American domestic banks would indeed fail were it not for TARP 1.

Let them fail.

It would mean liquidity for free. Instead what we have right now is liquidity for public debt. The fact that liquidity isn't the real issue is another issue. If it was liquidity in the first place, then ramping up $2 Trillion in public spending in 10 years, directly providing cash to the banks via TARP I, and the issue of the US Treasury "printing" nearly $1 Trillion in unbacked Federal Reserve Notes should have improved the credit markets or lending to commercial enterprises.

Economists in The Economist are starting to point out that this hasn't worked yet. The GAO agrees.

But then again, that doesn't seem to be the point. The point it would seem is to indirectly control the entire American commercial banking system by directly having federal ownership in the top 10 commercial NA banks. The federal government may be a minority holder, but its stock is an entirely new classification of stock never before seen in the American capitalist markets. It isn't a common stock, a preferred stock, a non-voting stock, or even a bond stock. Instead it is a stock that acts as an identification for specialized treatment.

If a company with this identification doesn't follow the government agenda, then it can see its executives fired, earnings taxed at 90%, or otherwise see day-to-day control removed from the other owners of the bank. If they do follow what the government wants as policy, then the bank gets tax payer funded cash infusions and an almost virtual assurance that the bank will never be allowed to fail.

So when you have a bank attempt to give back money- especially now that no one is even remotely worried about any bank runs or bank holidays, you have to wonder what utility is served by refusing to accept back a gift that wasn't needed in the first place.