Jun 24, 2009
While consumers are thinking how lucky the nation’s largest banks are for being rescued by the government using taxpayer’s money, the banks themselves are regretting their action. Some bank executives certainly aren’t grateful to the government for the “help”. This is because when Hank Paulson and Tim Geithner worked on the $700 billion bailout plan, bankers initially thought that this was designed to jumpstart the economy.
Neither the banks nor the government might have expected the severe public backlash as well as lawmaker’s posturing attitudes that resulted from it. The Troubled Asset Relief Program (TARP) might have made its way through Congress but it came at a very high price. At the meeting where the TARP funds were allocated to the financial institutions, the bankers found out that the Obama administration as changed the plan’s original design. The government will now own a significant share of their banks.
It came as no surprise that some bank representatives balked at the offer. However, Paulson wasn’t taking no for an answer. He believed that leaving the country’s biggest banks at that point in time would leave them exposed. And more failures in the financial sector are bound to spook investors and the public. So certain banks were left with bailout money they don’t want.
Before you think that the TARP money is a bad idea both for the taxpayer and the banks themselves though, it is important to remember that the program did help some institutions greatly. Everyone knows that Citigroup Inc. will no longer exist in its existing structure were it not for the bail-out funds. But some banks are starting to resent having ever receiving the TARP money in the first place.
Around four months after they agreed to the offer, the CEOs of the big banks were asked to go before a House committee where they were called “captains of the universe” to their face by a certain lawmaker. In addition, another one told them that no one trusts them anymore. But the friction between the government and the banks really came to a head during the public outcry regarding AIG’s $165 million in retention bonuses.
Capitol Hill sought to ease public tension by passing a 90% tax on bonuses. With this, the initial good intension of the TARP fund became steeped in bad sentiment. A mere eight months after the TARP was implemented, the banks have already returned $68 billion in total and they are scrambling to pay everything back.
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- Where did the Banks Spend the Bailout Money?
- Bankers Reacting Angrily to Pay Cut
- Capitol Hill and the Financial Crisis: A Busy Week
- Oversight Structure will become Sticker for Banks
- Bank of America Now Closing in on the $33.9 Billion Gap
- GMAC LLC Changes Its Name to Ally Bank
- Executive Compensation – Weekly Round Up
- Big Banks Ready to Repay the Bailout Money
- Larger Banks to Pay Bigger Share in FDIC Levy