Banks Pay Back TARP Loans with Other Treasury Loans

Last week, eight smaller banks paid off $103.3 million of the money they borrowed from Treasury as part of the Capital Purchase Program — part of the financial bailout (TARP). Well, sort of:

In finance and banking you always have to read the fine print. And if you go back to the report, you’ll notice that the fine print accompanying the entries for each of the above exits makes reference either to Footnote 49 or Footnote 50. Footnote 49 reads: “Repayment pursuant to Title VII, Section 7001(g) of the American Recovery and Reinvestment Act of 2009 using proceeds received in connection with the institution’s participation in the Small Business Lending Fund.” Footnote 50 reads: “Repayment pursuant to Title VII, Section 7001(g) of the American Recovery and Reinvestment Act of 2009 — part of the repayment amount obtained from proceeds received in connection with the institution’s participation in the Small Business Lending Fund.”

All of which is to say that these banks repaid cash owed to a program run by the Treasury Department by. . . borrowing from another program run by the Treasury Department.

It’s a little like charging your Visa balance at 28% to your Master Card at 26% and then bragging about having paid off your debt.

The purported purpose of the Small Business Lending Fund, established in 2009 under the stimulus, is to “help create jobs and promote economic growth in local communities across the nation.”

Either that or to help give certain bailout recipients the appearance of having paid off their loans when they’ve simply transferred them to a new debt to the Treasury.

Often, when the government throws out the “bailouts are getting paid back faster than expected” line, it’s an illusion — the above is just one example of the sleight of hand involved.

These games aren’t confined to banks. They extend to the auto bailout as well, and get much more expensive than what we were just talking about above.