Bailout? What Bailout?
Washington, DC — There is a misplaced belief that the US government is bailing out big business and financial institutions; however, bailing out is probably not a good way to describe the arrangement.
Many of the small and medium sized banks did not want to take Troubled Asset Relief Program (TARP) money. At the time, there was heavy pressure from government officials for all the banks to take the money even if they were not in need. The thinking was that if all banks took the funds it would be harder to tell which banks were really in trouble (causing a run on certain banks.)
Now, the banks that were in solid standing and did not want the TARP money are finding it hard to pay back. When the banks entered into the program, the government was issued warrants. Warrants are a type of stock option. If a bank wants to repay the TARP money, they also have to pay off the government’s warrants. For some banks that have repaid TARP debt, the buy-back of their warrants has equated to a 60% rate of interest.
Not only are the banks not getting bailed out, they are forced to submit to the governments interest rate usury.