Evansville screwed the system?

After a 4:30am nite at work I'm too tired to really attend to the blog, but then I saw the articles today about 10 banks repaying TARP funds and had to write a little something - I mean, it does involve Evansville, IN for crying out loud. How you might ask? Well, although this will be understating things a bit, it basically goes like this - when a bank repays its TARP funds, it kind of buys back "warrants" that the Treasury took in the company. Now these warrants must be paid for based on a fair market value formula -- so this is how the government said the taxpayer would make money on the deal. The Treasury got in when values were low, then the idea is that banks stabilize and increase in value and their fair market value then increases(and the warrants increase in value as well).

The question lies in whether the formula is accurate enough. Old National Bank of Evansville, IN is the only bank to actually have paid the government for its interest/warrants thus far. ONB paid $1.2 million for warrants that were worth between $1.2 million and $5.8 million according to estimates (the wide range indicates how poor the formula may be or how hard it may be to "fairly" value these warrants). Assuming the warrants are actually worth $5.8 million, that means ONB would have secured nearly 80% of the taxpayers profits on the deal!

So what the big deal - we're talking 4 million dollars for 300 million taxpayers/people. Well, consider that Goldman Sachs, Morgan Stanley, and JP Morgan are looking to buy their warrants from the Treasury. If the same formula is used, then they may only end up paying $1 billion for warrants that are worth $4 billion.

The numbers and exact formula aren't so important here as the fact that banks are making money (potentially) on a program that was intended to benefit taxpayers. Politically that stinks. But I dont care about that as much as the fact that this means that the government continues to find ways to spend without being reimbursed and/or cutting costs. That means more national debt and more concern about financial stability.

Throw in the fact that the Supreme Court is reviewing the Chrysler bankruptcy sale and you get a potential major flaw in the recovery playbook. These are the measures and actions that stabilized and calmed the frantic situation previously. These are also the measures that have given way to optimism and hope that have served as the grounds for the recent/current bear market rally. If these disappear or prove faulty (along with the bank stress tests - which the Congressional Oversight Panel (COP) today said weren't tough enough and needed to be done again), no I dont think we go back to fear and armageddon, but I think that it really makes you wonder what we're rallying on - if those are the base measures for dealing with these fundamental problems, then where are we if those measures are faulty? Not to mention (although I now will) that TARP hasn't actually succeeded in getting bad/toxic assets of bank balance sheets (which was the program's purpose). It's 'succeeded' in capitalizing the banks to cover losses -- at our expense. These aren't sound fiscal measures, responses or programs. And without the like, you can't build sound fiscal futures.