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Ear to the Ground

Some Banks to Repay Bailout Funds

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Posted on Jun 9, 2009
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Some of the country’s major banks are prepared to pay back money they borrowed under the TARP program, but don’t get too excited. The initial repayment is expected to be a meager $50 billion, which Timothy Geithner wants to inject right back into other troubled banks.

On top of that, the repaying banks will probably continue to tap other government sources of aid.

Wall Street Journal:

The $50 billion of repayments is the latest sign of improvement in the banking sector. At the same time, many of the banks repaying their TARP funds are expected to continue using other government assistance programs, such as the Federal Reserve’s financing facilities.

[...] While some big banks will be allowed to repay, the Treasury doesn’t believe things have improved enough that the money won’t be needed elsewhere. Treasury Secretary Timothy Geithner has said he plans to reuse returned TARP funds to assist other firms, including smaller banks, including those that have already received an initial TARP infusion.

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PatrickHenry's avatar

By PatrickHenry, June 9, 2009 at 2:31 pm Link to this comment

I hope all banks have to pay back the TARP money.

Every cent of it plus interest.

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By Anonymous, June 9, 2009 at 1:06 pm Link to this comment
(Unregistered commenter)

Q: Are the banks repaying TARP moneys with fractional-reserve-leveraged
  loans to themselves?

E.g., would it be legal for a bank receiving TARP money
to book that as reserves and lend 90% (10% reserved)
of that to a subsidiary (formed for this purpose),
which immediately deposits its loan proceeds back in the main
bank, thus creating 190% of original TARP deposits against
190% liabilities (original TARP loan + deposit from subsidiary).

Doing this one more time would get you 190% of 190% in
deposits, or 361% of original TARP money, and liabilities
to match exactly, so you have 100% reserve deposits to
match the liabilities.

Now, can you use the 10% fractional reserve rule to
repay the original TARP debt, so you now have 261% of
the original amount left as deposits on the books, and
exactly that demandable by the subsidiary, which deposited
90% x TARP the first time, and 90% of 190% = 171% the
second time, for a total of 261% of the original TARP
amount.

Reserving 10% of the deposits against that 261% x TARP
leaves the main bank with 90% of 261% = 234.9% of the
original TARP amount to play with, and only a sweetheart
subsidiary to deal with to balance the books when convenient.

Is this legal to do? If not legal with a subsidiary,
what about a friendly private entity?

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thebeerdoctor's avatar

By thebeerdoctor, June 9, 2009 at 10:21 am Link to this comment

Only in the USA is robbery applauded as economic improvement.

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By artie, June 9, 2009 at 9:00 am Link to this comment
(Unregistered commenter)

The power elite have transferred 10 trillion from foreigners to their own pockets, to be paid back by the masses over the next few generations. The largest,shortest time duration, swindle in the country’s history.

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By coloradokarl, June 9, 2009 at 4:32 am Link to this comment

Want to fire up the world,Timothy? Why not use the repaid money for NEW SMALL business development? Ahh but there is the rub, that would empower the “little guy” and why do that?

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