TARP Repayment vs Re-Regulation
Be sure to read Jack McHugh’s comments on the TARP repayment. He specifically asks:
1. With all the chatter about responsible regulatory reform, shouldn’t the rules governing bank conduct (e.g. leverage ratios, off balance sheet vehicles, etc.) be put in place before TARP repayments flow in?
2. Before TARP preferreds can be redeemed, shouldn’t the banks swear off all the other forms of federal assistance (the alphabet soup lending programs, FDIC-guaranteed debt, etc.)?
3. What exactly does “fair market value” mean when a bank desires to repurchase the equity warrants issued to Treasury in return for the emergency funding given the banks through TARP? No offense to the astro-physicists the banks have on staff, but could we ask for some third party verification of the models used to calculate the fair value of these warrants?
4. What happens if — Nassim Taleb forbid — a Black Swan appears (or even some continued erosion in our economy) that causes a bank or two to want to go back and ask the TARP to reissue them some preferred equity? Should we let them back in under anything other than truly onerous terms, if at all?
Great stuff, Jack . . .
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Source:
TARP Repayment — Some Questions for the “Perfect 10″
Jack McHugh
TBP Think Tank, June 10th, 2009
http://www.ritholtz.com/blog/2009/06/tarp-repayment-some-questions-for-the-perfect-10/
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June 10th, 2009 at 8:47 am
The definitive statement has already been made – we will not allow any of the Immortal 19 banks to fail, so regardless of reckless behavior in the past or in the future the Fed and Treasury will provide limitless backstopping for them and the Fed will continue to provide them with no cost money to make them profitable. Any financial penalties in the form of warrants pricing etc will be eyewash to calm congress and the taxpayers.
If they need fresch TARP like funds in the future they’ll get them because they have been declared immortal, GMAC , one of the most reckless mortgage lenders has been guaranteed immortality even though GM and Chrysler are bankrupt. Go figure. They need to repay TARP so they can resume their bonus payouts for the top tiers of management. If they take TARP money in the future they’ll be cafeful to avid restrictions like AIG did.
And they will need money when credit cards, commercial loans and high end bubble state RE comes a cropper again. This is 1931 not 1946.
June 10th, 2009 at 8:55 am
Gorbachev warns that the world’s current economic model, created by “America’s elite,” is “cracking.”
Point of FACT: Obama and his Wall St bought and paid for economic team have put all their chips on the Banking Oligarchs !
As it comes undone, many will suffer, he predicted. “Including the United States.”
In many respects he’s right but most Americans today are too ignorant or complacent to demand REAL change Wink
Perhaps when it’s too late i.e. America becomes a much BIGGER version of Argentina or Mexico in the near future they will wake up and say what the f*ck happened !
June 10th, 2009 at 9:49 am
the problem is that those running this are either politicians or hedge fund managers–not businesspeople who have a great ability usually to see how a business decision will unfold.
The Pols and hedgies throw something up on the wall to see what sticks and then as a need for a decision comes up they make one, any one.
When will congress be on the other side of the table in one of their many hearings.
June 10th, 2009 at 10:15 am
I agree the system needs to be simplified. The system needs to get off pushing $ piles as a primary income. I partially understand the repayment wishes. Nobody dislikes being told what they can and can’t write-off as a legit business deduction. Like salaries, workcations, remodeling, business vehicles, and etc.
Vegas. Miami, New Orleans, Houston, SanFran, Seattle, MinneapolisSP, Chicago plus the NewYork area real estate markets are counting on the draconian rules being removed.
The other point.
The USA borrowed at .25% and getting like 5% return. (I think .. don’t care to research it). Yesterday the MSM was abuzz with what we could do with the $65B in infrastructure rebuilding. PLEASE. What is the balance due to the banks on our borrowed money in the USAs check book?
June 11th, 2009 at 4:32 am
re: “4. What happens … Should we let them back in under anything other than truly onerous terms, if at all?”
Never at all. There will not be any reform whatsoever until Wall Street is forced to face the consequences of its own actions. This process was in its embryonic stages after Lehman but then collapsed in mid-November with the second bail-out of Citi and was then killed for good in Dec. with the bail-out of BAC. The public discussion that followed about nationalization, good-bank-bad-bank, etc. was all good policy-wonkish fun and games but entirely pointless. A solid of round of bankruptcies with the country living quite well without the miscreants (which it has since Sept., by the way, since all credit market improvements have come from Fed actions) is the necessary for any non-frivolous reform of the financial system.