Big Banks Are Repaying $50 Billion. Is The financial Boom Just Ahead?

The headlines today concern the return of your money and mine to Uncle’s Treasury. The article by Solomon in THE WALL STREET JOURNAL (June 9) states that some 50 billion dollars would be repaid. The president spoke today and declared that some 65 billion TARP dollars would be repaid by nine banks. J P Morgan will repay 25 billion, Goldman Sachs will send us 10 billion, and US Bankcorp will send in almost 7 billion. The other six banks will repay on average 3 billion or so each. The Treasury was expected to announce its approval of the plan today.

This is good news for the taxpayer as well as the economy. It suggests that banks are healing. Geitner said that the Treasury may need to use the money to support other firms, and especially smaller banks that may not be fairing well. We do know that other banks have repaid 1.8 billion of TARP money. This money comes from 22 smaller organizations. We will see who needs more money and who will repay it ASAP.

We all realize that the banks want to pay it back for several reasons. First, they want their customers to think and feel that they are solvent and can do business safely. This will bring them more deposits and activity which will raise fees for hem and thus their income. After he joke called the “stress test” was done, several major banks did not need to raise capital while many others were. This let some out of the doghouse. The Fed told the other ten banks that flunked his stress test that they could go ahead now and raise capital. That included Citigroup, BoA and Morgan Stanley.

The second but I believe the most important reason to pay the TARP money back deals with the moral hazard banks and the financial firms have gone through. The government has stepped in to control them. Boards, chairmanships and salaries have been set by the federals like FDIC etc. This is not comfortable to those who believe in capitalism. Creeping socialism was overtaking the free enterprise system. The financial institutions can now get the government out of the board room and leave business to the stock and bond holders and CEOs again. There are still major regulations in place and maybe more to come, but the banks can now breathe easier. And so can those who believe in capitalism. The moral hazard was always the greatest fear to face in this financial crisis. Remember that our debt was 100% of GDP after WW II. It did not get that high with this crisis. Things were bad but we would have survived it.