Well...those lovely company trips and other luxury add-ons from last fall’s ‘bailout’ prove your words correct. As to ‘bailout’ for those guys, it was NO bail out.
Even if they DO pay it back, (and considering the imminent economic uncertainty, will they?)borrowing, borrowing, borrowing is not the best path to economic stability.
That is strictly MY uneducated opinion.
You really got to hand it to the banks and financial institutions who DON’T “borrow” TARP funds.
Banks exist on the concept of borrowing.
When you deposit money in a bank, they are essentially “borrowing” it, and paying you interest.
They then take the money and lend it to other people with a spread, and their profit comes from the difference between what they pay you for the use of your money and what others pay the bank.
In the specific example in the article, the bank is using the TARP money right to meet capitalization requirements.
They plan to lend that money out for JUMBO loans, I presume because they can set a higher interest rate on the JUMBO loan than the interest rate they had to pay the government.
Well, maybe not. Because capitalization requirements are a fractional value. If they have a million in the bank, they can lend a lot more than a million.
So if they borrow 100 million from the government at 5%, and then lend out 200 million at 4%, they will make 3 million a year (5 million in interest paid vs 8 million in interest earned).
The purpose of the TARP was to provide capital to allow banks to lend, so if the bank does create loans from the TARP money, it’s working as designed.
There are other parts of TARP where government actually buys portfolios from the banks. If the government pays more than market value, that is a bailout.