Apparently, the $34 billion figure is good news because BAC has all those preferreds at Treasury that can be converted to common stock, leaving Treasury with $34 billion of common and $11 billion of preferreds. But Joe Weisenthal asks a good question:
If this is how the conversion goes, and the bank does pay off the remaining $11 billion over the next year or so, are they considered to have repayed TARP? How does a bank that's taken the conversion ever actually repay the TARP?
This is troubling, because it's now clear that the worry many of us had at the time of the bank bailouts has come true: the government is using its intervention in the banking system to pressure banks to give special deals to the government's special friends.
(The government is apparently still taking the line that they are only intervening because the automakers are splendid, robust companies that got caught in a "perfect storm". If so, Chrysler must be stuck in the Bermuda Triangle, because owners have been playing "hot potato" with its dying brands for most of the last decade.)
Countries that use their banking systems this way don't get good results. If you're a fairly uncorrupt developed country, you get slower growth and bloated "critical" sectors that are usually more critical in providing campaign support, lavishly remunerated make-work jobs, and photo ops, than any products the public actually wants. Then, if something like Japan happens, you have a twenty-year "lost decade" while everyone pretends as hard as hard can be that everything is all right, in the sincere but misguided believe that wishing hard enough will make it so.