Now that the bulk of the crisis has passed, and the panic has subsided, the banks want to return the money, no strings attached. Return the cash, leave the regulatory environment alone, write downt h warrants, and move on with our lives.
My response is, “Not so fast.”
Let’s not forget how this occurred: A radical deregulatory scheme let these companies operate with little or no oversight. Without adult supervision, they promptly blew themselves up, destroyed billions of dollars in shareholder value, cost the global economy trillions, and scared the beejesus out of everyone else.
When these companies were circling the drain, nobody but Uncle Sam (and the Taxpayers) — and for only Goldman Sachs and GE, Warren Buffett — was willing to fund these companies. The risk levels were extremely high, the potential damage to the dollar, the taxpayer, inflation, and the US credit rating was also very high. As is, the US is still out of pocket trillions of dollars, and are likely to see major losses. Prudent well managed firms are seeing their expenses go thru the roof — especially FDIC insurance.
This is not money that you get to return and say, Thanks, but we no longer need this.
Instead, there are several things that should happen, if our elected officials and regulators have any savvy:
1) The Warrants should be placed into a Trust for the benefit of taxpayers, where it will be held for 5 or 10 years. Then, it can be liquidated for the benefit of the Treasury.
2)Re-instate Glass Steagall, revert the leverage rules, repeal CFMA;
3) Adequately fund and staff the SEC;
4) Remove the incentives for excess risk taking (i.e., private profits but socialized losses)
5) Align compensation systems with actual risk adjusted profits.
Lastly, I would like to see a bi-partisan, Blue Ribbon panel put together analyzing why this occurred. Put an Elizabeth Warren or a Paul Volcker in charge, and give them 6 months to create a comprehension assessment of what went wrong, along with recommendations on how to fix it.
But a no-strings-attached, return-of-the-money, back-to-business-as-usual ? Not so fast . . .
U.S. Weighs How to Let Banks Give Money Back
LOUISE STORY and ERIC DASH
NYT, May 19, 2009
Banks seeking to repay TARP billions must wait until June 8
Ronald D. Orol
MarketWatch, May 19, 2009, 5:22 p.m.
Fed to Respond to TARP-Repayment Applications in June
Bloomberg, May 19 2009