TARP repayment: An IM exchange

April 22, 2009

John Carney: this issue of TARP repayment conditionality is fascinating

Felix Salmon: It’s a bit like the rules-based vs principles-based debate

John Carney: I’m convinced that Geithner is violating the law by imposing conditions.

Felix Salmon: Should TARP repayment conditionality be written down in legislation, or should it basically be left up to Treasury on an ad hoc basis?
I think the law is largely irrelevant

John Carney: Which is kind of troubling. I mean, if Congress specifically includes a provision, can the Treasury just ignore it? Has the democracy bubble popped?

Felix Salmon: The law gets written in a hurried way by people who don’t really know what they’re doing, and then the facts on the ground change
I know you can say that about most laws of course
But in this case things are just moving too fast, and it’s the job of the Treasury secretary to stay on top of them

John Carney: Yeah. I think a truly interesting question is how this wound up in the stimulus bill.

Felix Salmon: It is a bit weird that a pro-bank clause ended up in the bill when Congress was mainly trying to punish Wall Street as much as possible

John Carney: especially since it specifically nullifies a clause in the original TARP agreements

Felix Salmon: My guess is that rather than pick a fight with Congress, Treasury let it slide, safe in the knowledge that no bank would try to repay TARP funds in the face of Treasury opposition, no matter what the law says

John Carney: Possibly. Or they just didn’t see it.

Felix Salmon: Lord knows Treasury was (and is) woefully understaffed back then

John Carney: yeah. and it was a huge bill.

Felix Salmon: Do you see any bankers taking the letter-of-the-law argument?
My guess is they’ll think about it for a few minutes, and then decide that it’s far too dangerous to go there

John Carney: I dunno.
Paycaps are a mighty incentive to defy Timmy

Felix Salmon: true dat
and Timmy isn’t looking particularly fearsome these days

John Carney: I’d piss tim off if it meant the difference between making $30 million and $500K

Felix Salmon: And certainly Jamie Dimon’s ego is well-developed enough to take on anybody

John Carney: He’s far more popular than Geithner anyway


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