We've all heard about TARP for the past few months; the 700 Billion dollar bailout of our country’s troubled financial institutions. We've all witnessed the government dole out the mega bucks both to banks and institutions that sorely needed it — like AIG — and to banks that didn't need, nor really want, the cash — like JPMorgan Chase.
Apparently Paulson made the healthier banks take the cash to hide which institutions really needed the funds thus preventing a run on the banks. While I understand the logic, I must say it irks me that not only were these healthier financial institutions JPMorgan Chase, Morgan Stanley and American Express sold billions in stock to raise money to repay TARP yesterday.
When companies took the TARP funds, there were all sorts of strings attached including caps on executive pay, expectations of high dividend payouts to the Fed and the fact that existing shares were diluted. Yes, some of the banks' desire to pay back the cash might be self-serving (like removing restrictions on executive salary caps), but I see a bigger picture here. "It's the economy, stupid."
I believe that banks absolutely should be allowed to repay TARP money received from the government because it's a sign of a healthy economy. Yes, the TARP funds have helped many institutions that were in serious financial straits. And yes, we as tax payers took a risk investing in these companies and we deserve a return on our investments. But I feel that a healthy economy is far more beneficial to the tax payers in the end than any short-term gain or amount of money we'll make from TARP dividends.
If a bank is robust enough to return the money, the government shouldn't prevent them from getting out from under the restrictions and regulations of TARP. Let them flourish in the private sector, unshackled by overbearing invasive government regulations.Chase CEO Jamie Diamond said that repaying TARP will leave banks "free and clear, like a real American free citizen, corporate citizen, like we were in the past."
The counter argument to allowing the healthy institutions to pay back the funds is that it will highlight the weaker banks and cause any stabilization in the banking sector to crumble again. But the stress tests already laid bare the weakest institutions. While the purpose of TARP was the reinstate confidence in our financial system – and I believe it did accomplish that--it's time to let the chips fall as they may and let the economy get back on track.
What are your thoughts on this? Do you think companies should be allowed to repay TARP funds if they can? Or do you feel the economy is still too rocky and such a move would hurt the confidence that is being rebuilt? Let me know!