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Dec 20, 2008


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Patrick Eakes

Just to clarify (and maybe it's obvious to everyone else), the 5% and 9% rates are annual rates.

I think the TARP program is structured to give taxpayers reasonably good collateral and a good return on the loans. I am not generally in favor of partially nationalizing the banking industry, but the TARP plan should give taxpayers a pretty good expectation of recouping the outlaid funds.


here is from citizens against government waste

Wastewatcher, December 2008

Barely sixty days after its establishment, the Troubled Asset Relief Program (TARP) is itself, well, in big trouble.

Since the Treasury Department has already committed $290 billion of its initial $350 billion authorization, the TARP program is bumping up against its first hard ceiling. The remainder of the total of $700 billion Congress authorized will only be made available after explicit congressional approval and outgoing Treasury Secretary Henry Paulsen has been noncommittal in public about whether he intends to seek access to the rest of the money.

However, TARP is facing heightened criticisms of its effectiveness and oversight. In addition, after Congress rejected a legislative handout for Detroit’s three domestic automakers, the Bush administration announced that it might tap TARP to provide them with a cash infusion, a move which muddied the rationale for TARP even further, and sharpened the general public’s perception of TARP as nothing more than an anything-goes slush fund for politically-connected industries looking for a handout. With the transition to a new and different presidential administration within weeks, the Bush administration is fast becoming irrelevant, but the effects of the mismanagement of TARP will be with us for a long time.

The law that established TARP also called for the creation of a Special Inspector General for TARP, or SIGTARP to ensure that taxpayer money would be protected from mismanagement and abuse. However, the Bush administration only recently announced its nominee to the position, New York Assistant U.S. Attorney Neil Barofsky. The process has not moved forward from there, presumably partly in order to give the incoming administration an opportunity to ratify that choice or nominate someone else. Mr. Barofsky, should he be confirmed, will be arriving long after hundreds of billions of dollars have potentially gone down a rabbit hole.

In December, the Government Accountability Office (GAO) expressed serious concerns about the management and oversight of TARP. According to GAO, “Treasury has yet to address a number of critical issues, including determining how it will ensure that the Capital Purchase Program is achieving its intended goals and monitoring compliance with limitations on executive compensation and dividend payments.” In addition, GAO observed that while the Treasury’s Office of Financial Stability is “working to implement a comprehensive system of internal control, until such a system is fully developed and implemented, there is heightened risk that the interests of the government and taxpayers may not be adequately protected and that the program objectives may not be achieved in an efficient and effective manner.”

On the heels of GAO’s negative assessment of TARP’s oversight came hearings in the House of Representatives, which heard testimony on December 10 from members of its own oversight board, the Congressional Oversight Panel (COP). The COP report posed fundamental questions about the program, such as “What is Treasury’s strategy?” and “How is Treasury Deciding Which Institutions Receive the Money?”

Taxpayers should be alarmed that those basic questions are just now being asked and that there appears to be virtually no oversight of TARP. When it comes to government financial transactions, sunlight is the best disinfectant against scandals and mismanagement, which tend to molder and grow unchecked….especially under a TARP.


"Carolina Bank is rated “well capitalized", which meant it was their option to take the deal or not."

"Braswell: "Since we did not feel the equity markets were going to recover any time soon, it made sense to take advantage of it, as most of our competitors were. If we had not, they could gain a competitive advantage over us.We plan to pay it off as soon as the markets return to something that resembles 'normal."

Does this mean we are also bailing out banks who aren't in trouble? That's how I'm reading it-- am I wrong?


And just so the bankers know where I stand, I'm opening a new business account here.


@ RecycleBill

Wish there was one in my area.

An obvious truth: Low-income does not necessarily mean higher risk !

What it may mean is smaller profit margin - and that is a whole 'nother can of worms for those that insist on MAXIMIZING profit :)

Patrick Eakes

The feds forced the national banks to take the cash infusion. The regional banks, in turn, felt like they had no choice but to take the cash. That is why well-run banks like Carolina, Southern Community, and BB&T took the cash, at least until things settle out a bit.

One downside to taking the money at 5% is these banks now have a higher cost of capital. So, even though the prime rate is 3.25%, no one can get a loan anywhere near that rate. Term loans are double that rate or more.

RecycleBill, thanks for supporting Self-Help!

David Wharton

Ed and Mr. Braswell, thank you. I had to do a little research to find out what a warrant is, and I still don't understand what the 15% in "15% warrants" means (15% of CB's capitalization?), but the general picture is getting clearer to me.

I think most people don't understand that -- or why -- the government is recapitalizing well-run institutions like CB, but I understand Mr. Braswell's decision. As I said in my post, he'd be an idiot not to take the offer.

Disclaimer: I've been a happy CB customer for years.

The banker's view is that their culture is indispensable for the future of the world, and of America. Many of them really think that is true, they know no other world. But for the man in the street, it makes no difference if the Wall Street titans are toppled. He simply needs access to his money, to feed his family, and he needs a job to provide that money. $8 trillion could have provided much of that. But it is now gone. And we'l never see it again, because it's been given to institutions that have losses that are far greater than $8 trillion. In toxic assets. It is not that hard to figure out.

the 8 trillion is not "gone" is merely in money purgatory, waiting to be ransomed out by the next bailout. When the newest neoObamacon colony of Iraqistan starts to pay for itself, as promised by the last regime, the Bush legacy will be restored. While Obama is getting LBJed in Chaostan, the footwear lobby will achieve its goal of having shoe throwing classified as a hate crime. These are my psychic predicitons for 2009 and the future colony of Obamastan.

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