James K. Glassman has a strict warning about the Troubled Asset Relief Program (TARP). In his guest commentary on Forbes.com, Glassman, the president of the World Growth Institute and former undersecretary of state in the Bush Administration, wrote the TARP may soon be a failed system in which "you can get in, but you can't get out".
Read an excerpt below:
The stress test has revealed the triage that needs to be performed in the financial services sector. Government can concentrate on banks that need help, but the ones that are healthy should be free to move on. Sound, profitable, independent banks will encourage confidence from investors and consumers alike.
But there's a hitch. While healthy banks have been lining up to repay billions of dollars in bailout money to taxpayers, the response from officials has been more reluctance than enthusiasm.
The regulators who must approve repayments are dragging their feet, and the Senate on Tuesday rejected an amendment to stop the Treasury Department from impeding the process. As a result, the Troubled Asset Relief Program (TARP) risks becoming a roach motel: You can get in, but you can't get out. The real reason for the coyness may be that Washington is loath to give up the political control that comes with being a large shareholder in a giant bank.
Under the $700 billion TARP, about 500 banks received injections of capital in return for preferred stock and warrants to purchase more shares. Many of these banks now want to pay their federal creditor back, but under legislation passed in February, regulators must give approval.
Northern Trust, a solid Chicago-based institution with $82 billion in assets and a strong trust and custodial business, announced April 27 that it was raising $750 million in common equity and $500 million in senior debt to repay its TARP capital in full. Other banks that say they are ready to repay range from Goldman Sachs, the fifth-largest U.S. bank by assets, to Centra Financial, a community bank in Morgantown, W.Va.
Goldman received $10 billion in TARP funds and Centra $15 million--even though both were healthy institutions that didn't need the money. American Express, which received $3.4 billion, has announced it plans to repay as soon as regulators allow it to.
The argument for repayment is simple: Taxpayers took a risk, and they will be handsomely rewarded. Meanwhile, the Treasury will get back funds it can use to help shakier banks--or to reduce Washington's own borrowing needs.
Read the entire commentary at Forbes.com.
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