Fallout: The Financial Crisis

Gov’t is reluctant to get TARP repaid

Amy Scott Jun 2, 2009
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Fallout: The Financial Crisis

Gov’t is reluctant to get TARP repaid

Amy Scott Jun 2, 2009
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TEXT OF STORY

Kai Ryssdal: Morgan Stanley, JPMorgan Chase, and American Express raised a couple of billion dollars in the stock market today. The Federal Reserve told them they had to if they want to give back all that cumbersome bailout money. You might think the government would be thrilled to get paid back. But as Marketplace’s Amy Scott reports, it has been dragging its feet.


AMY SCOTT: In order to return the government’s money, banks have to prove that they can stand on their own. This week the Fed added a new condition — that the banks show they can sell large quantities of stock to investors. Douglas Elliott is a fellow at the Brookings Institution. He says the government is reluctant to give up its stake.

DOUGLAS ELLIOTT: We don’t know for absolute certain that we’re through the crisis. It’s safer to have the additional capital. Perhaps more importantly, the administration would like the banks to be doing more lending. They’re more likely to do that if they have a bigger capital base.

Elliott says the government could use the money. The repaid funds could replenish the TARP, and help out struggling smaller banks. It also sends a message to taxpayers and investors that the economy is stabilizing. Linus Wilson teaches finance at the University of Louisiana at Lafayette. He says raising money on the stock market shows the big banks don’t need government help.

LINUS WILSON: If these banks repay TARP, taxpayers win because they lose less money to the banks. And banks win because they get government off their back. And it’s also a good thing that they’re raising common equity because that makes them less likely to need to be bailed out in the future.

Banks like JPMorgan Chase and Goldman Sachs have been eager to repay the TARP funds. Bankers say the money carried too high a price, restrictions on executive pay and a stigma with investors.

In New York, I’m Amy Scott for Marketplace.

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