Bailout Bonanza

The lead article in today’s New York Times is titled, “As Banks Repay Bailout Money, U.S. Sees Profit.” The article describes the government’s profits from TARP, the Troubled Asset Relief Program, after some banks have begun to repay loans from the government. The repayment amount so far, $4 billion, represents the equivalent of a 15 percent return annually.

The article comes with some caveats. It does not include bailouts from AIG, Fannie Mae and Freddie Mac, or the automakers General Motors and Chrysler. Nor does it include potentially large losses from toxic assets from Citigroup or Bank of America.

But, in my opinion, the article provides some rare good news. Republicans, who have been quick to criticize TARP as a waste of taxpayers money, even though it was started under President George W. Bush, are sure to be left flatfooted, hemming and hawing about the news. The details represent a vindication for President Obama in his continuing and successful struggle to get the economy to rebound.

According to the article, the main profits come from “warrants,” because they consist of the low fixed price the government paid for shares of the companies, at the time depressed to just a few dollars. But the banks now want to become totally independent of the government and are rushing to pay back the loans. The reason why? In my opinion,  it’s the fact that the government has used the dependency to try and regulate the enormous salaries and bonuses of chief executives, particularly from those banks on the government’s dole.

It’s amazing how much money can serve as a driving force, especially when the shoe is on the other foot!