The Post discussed the extent to which banks have repaid their TARP money, noting that small banks have been much slower to pay back the government loans than large banks. At one point the article discusses the sale of warrants on bank stock that the government received as part of the package. It comments that: "the goal of requiring the warrants was to ensure that taxpayers would see a return once the banks recovered."

It is worth noting that the government lent TARP funds at interest rates that were far below the interest rates prevailing in the market at the time. In many cases these below market loans were needed to allow banks to survive. In all cases, the subsidy provided by these below market loans amounted to a substantial gift to the bank.

For example, Goldman Sachs (one of the more creditworthy banks) had to pay 10 percent interest on the money it borrowed from Warren Buffet at almost the exact same time as it got TARP loans from the government. The interest rate on TARP loans was 5 percent. It also had to provide Buffet far more warrants per dollar of loans. In the case of Goldman, the subsidy from its below market TARP loans almost certainly amounted to more than $1 billion, even if the government still reports a profit on these loans.

It is deceptive to say that the government made a profit on its TARP loans since it could have made a much larger profit if it had lent this money at market rates. Making capital available to favored borrowers at low cost, in the middle of a financial crisis, allowed these favored banks to make enormous profits with the government's money.

--Dean Baker

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