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
