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Geithner, TARP, and the Law
This article notes Treasury Secretary Timothy Geithner's assertion in congressional testimony that the Treasury can recycle TARP money as banks pay it back. It would have been worth noting that the law authorizing the TARP explicitly prohibited the recycling of TARP money that was used to buy assets from banks.
[Richard Meagher, in a comment below, refers to a blognote by David Zaring, arguing that the law does authorize Treasury to re-lend money returned from TARP, despite explicit wording saying that this money is returned to general revenue. Zaring's view rests on the wording that limits the program from having more than $700 billion outstanding "at any one time." Zaring claims that this wording would have no meaning unless the purpose was to allow TARP money to be recycled.
Actually, there is a very simple alternative explanation. Paulson and others floated the idea of various public-private partnership schemes (like the PPIP currently being pushed by Secretary Geithner). These schemes could have required the Treasury to put out money in advance of bringing in other investors. In such cases, the wording would be a restriction that prohibited the total outlay from exceeding $700 billion at any one time, but that money could be relent when the partners had been brought on board.
This could mean, for example, that if the government initially hit its $700 billion cap by putting out $200 billion for troubled assets, but then brought in private partners for half this amount, it could then re-lend the $100 billion. This would not mean that the TARP was a revolving loan fund, just that the timing of investment decisions could temporarily drain funds, that could then be replenished.
Is this a plausible interpretation of the wording? Well, I would say it is more plausible than Zaring's interpretation that the wording requiring that proceeds from the sale of troubled assets be returned to general revenue simply meant that Treasury could not use money to start a national health care program.]
--Dean Baker
COMMENTS (6)
The performance by Gaithner yesterday was again poor.
It is past time for him to go. He is constantly answering questions with a series of self serving adjectives of competence in the face of an “extraordinary” difficult task.
Really.
His written testimony is on the Financial Times this morning.
He is going to encourage more asset backed securities of Securitized loans
(student, credit card etc). He said this after he explained how these products brought down the economy.
I think the senate should understand that Gaithner is seen as not healthy by the general public and yesterday’s testimony was more proof.
Posted by: Evergreen | May 21, 2009 8:48 AM
My opinion is that due to his Wall Street past Gaithner's view is biased to thinking that Wall Street is more important than it is. IMO if we could let the Wall Street investment banks (who IMO are very inefficient and have been involved in scandal after scandal) die without too much collateral damage that they would likely be replaced by much better alternatives making us all much better off.
Posted by: Floccina | May 21, 2009 10:18 AM
David Zaring thinks they can get away with it.
Posted by: Richard Meagher | May 21, 2009 10:48 PM
Here is another way in which the Tarp banks are getting a sweet deal.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aOQPmbrh1ZrA&refer=home
in which the banks are starting to try to repurchase the warrents to buy their stocks.
However, the price is being negotiated between the banks and the treasury rather putting up the warrents for public auction.
"..Black-Scholes options valuation tool appraised one Old National warrant at $7.18. The bank paid the U.S. $1.48 for each."
Posted by: AndrewDover | May 22, 2009 10:44 AM
This is what happens when you ram hundreds of pages of TARP legislation through Congress with scare tactics that if it's not immediately passed there will be violence in the streets and economic armageddon will ensue.
Congressmen/women are stupid for rushing this bill through, obviously without even reading it. Who knows what other goodies the Treasury and Fed have buried in this legislation?
I blame Congress. They were the fools that rushed this bill through.
Once again, Congress failed to represent the best interests of the American citizens.
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