The case for allowing TARP repayments

June 9, 2009

Reuters’s US commentary team had its first, rather bedraggled, morning meeting today. The news of the day is the TARP repayments. Matt Goldstein is worried that once the money is paid back, Congress won’t allow it to be re-lent, but I’m thinking that actually the opposite is true: if Treasury needs new firepower to rescue banks in real trouble, then — given Congressional opposition to any new bailout bill — the only way to get the necessary funds will be to use money already in the TARP account. Since the TARP is pretty much all spent by now, Treasury has little choice but to let JP Morgan et al replenish it.

Worries about stigmas, it seems, are very 2008 — back then, the idea was that if everybody got funding then the government wouldn’t be sending signals about who was healthy and who was ill. But in the wake of the stress-test results, pretending that all banks are equal is silly. So let the healthier banks repay the TARP funds — especially if the government retains some oversight over pay — and use that money, if necessary, to shore up the less-healthy banks. Treasury will likely need it if Elizabeth Warren gets her way and the stress tests are run again.


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