Why the Banks Are So Eager to Pay Back TARP

More

Here's the New York Times on the banks' somewhat extraordinary plans to pay back the TARP money in seven months -- maybe years before the Treasury expected:

Having regained a financial footing as well as a bit of their old swagger, major banks are racing to pay back billions of taxpayer dollars ... Now that big banks seem to have stabilized, regulators are trying to determine how and when these institutions should be allowed to return their bailout money.

That's great thing, right? Not exactly, says Ezra Klein:


The banks, he writes, are something like a gambler who knows dark secrets about the casino owner's wife. So if he runs out of chips, he'll just throw a glance at the owner and receive another stack. In other words, he has no incentive to play safe (or smart!) because, when "The House" needs you to be happy, a game of risk suddenly isn't a risky game at all.

The banks are the gambler because the government has no "credible process for allowing and managing a bank's failure." So why not pay back the TARP as soon as you can, cut the strings that hold you down and get Geithner off your neck? It's also a street cred thing, writes TNR's Noam Scheiber. It's a race to be seen as the first healthy bank to seize the comparative advantage in the market.

I think this interpretation makes a lot of sense, but this other side of the coin deserves a look. Bank of America has found it surprisingly easy to begin to raise the $34 billion dollars required by the stress tests, and public confidence in the banking system post-tests is up for the first time all year. The downside of bending over backward for the banks is all too evident: it's been ungodly expensive and the banks could be more difficult to re-regulate after this mess is over. But we've avoided a Lehman-esque castastrophe without electro-shocking public opinion with premanture nationalization rumors, while keeping investors eager to capitalize the most troubled institutions. Not ideal, no. But not bad for a game of messy incrementalism.

Jump to comments
Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

Get Today's Top Stories in Your Inbox (preview)

What Is the Greatest Story Ever Told?

A panel of storytellers share their favorite tales, from the Bible to Charlotte's Web.


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

The Death of Film

You'll never hear the whirring sound of a projector again.

Video

How to Hunt With Poison Darts

A Borneo hunter explains one of his tribe's oldest customs: the art of the blowpipe

Video

A Delightful, Pixar-Inspired Cartoon

An action figure and his reluctant sidekick trek across a kitchen in search of treasure.

Video

I Am an Undocumented Immigrant

"I look like a typical young American."

Video

Why Did I Study Physics?

Using hand-drawn cartoons to explain an academic passion

Writers

Up
Down

More in Business

Just In