Bailout repayments: Easy come, easy go

Don't get too excited about the billions banks are returning. We may need that cash for the next disaster


Andrew Leonard
June 9, 2009 9:04PM (UTC)

The Wall Street news of the day is that the Treasury Department is allowing ten banks to pay back as much as $68 billion in TARP bailout money. The econoblogosphere has been debating whether or not this is a smart idea. One line of argument runs as follows: If the economy gets much worse, and the problem of all the bad loans and toxic assets on bank balance sheets isn't resolved, don't we want these banks to have as big a capital cushion as possible in order to survive? The other line of argument, ably presented by Felix Salmon and echoed by the Economist's FreeExchange blogger, is that if the economy does go significantly further south, it won't be these ten banks that need the most help; rather, it will be the banks that are not being allowed to pay back their bailout bonanzas -- namely Citigroup, Bank of America and Wells Fargo, to pick on a few prime candidates.  So maybe it's a good idea to have some cash in reserve for emergencies.

The official statement from the Treasury Department announcing the news makes this point pretty clear in its final paragraph. Italics mine.

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Under the Emergency Economic Stabilization Act, proceeds from repayment will be applied to Treasury's general account. These repayments help to reduce Treasury's borrowing and national debt. The repayments also increase Treasury's cushion to respond to any future financial instability that might otherwise jeopardize economic recovery.

In a long Sunday New York Times opinion piece, Sandy Lewis and William Cohan critically appraise the Obama administration's various financial sector moves, and end up urging that the CEOs of each bank that wants to pay back its TARP money be called to testify under oath before Congress to explain exactly what went wrong.

Such a public hearing would be meant only to offer a truthful assessment of the errors in judgment made at each firm and to promote understanding, so that we -- somehow -- can avoid repeating the same mistakes again. It would not be about indictments. These men should be offered immunity from prosecution for their honest testimony, but only with a clear understanding that the failure to tell the truth at any point would result in serious legal consequences. The hearing could be complemented by a truth-seeking commission established to hear the accounts of several people who have departed the scene, including, among others, Mr. Paulson, former Treasury Secretary Robert Rubin and former Wall Street chiefs like Mr. Fuld, Hank Greenberg of A.I.G., Sanford Weill of Citigroup, Jimmy Cayne of Bear Stearns and Stan O'Neal of Merrill Lynch. While far removed from their positions of authority, these men have tales to tell about how this crisis got started and why.

I found this a bit amusing. William Cohan is the author of "House of Cards," an enlightening account of the crash-and-burn of Bear Stearns. As he makes manifestly clear, Bear Stearns' CEO, Jimmy Cayne, had very little hands-on knowledge about what was going on in the mortgage market, or what kinds of games Bear Stearns traders were playing with exotic securities. Indeed, in an imperial pout, Cayne fired the one guy, Warren Spector, who did have a clue about such shenanigans! I'd love to see these jokers testify under oath as much as anyone, but I'm not sure any of them really understand what happened.


Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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