Back in September when our financial system was on the brink of collapse the biggest banks in this country were ready to crumple into pieces. Troubled Asset Relief Program lent money to banks such as Bank of America, Citigroup, Goldman Sachs and JP Morgan. At the time these companies had lost billions of dollars and were in vital need of money. The federal government stepped up and took big stakes in some companies. The ability to have control on the financials and at the same time make a large investment was viewed as a smart move.
Now that the first quarter of 2009 is over big banks such as Goldman Sachs and JP Morgan made significant profits in the first quarter. Both CEO's have come out and publicily admitted they want to pay back the TARP funds as soon as possible. The only problem is that the federal government is hesitant of this idea.
The government says that it doesn't want to receive money back from banks because it would cause public perception on what
banks are good and bad. They believe this would classify banks into different groups and they don't want that happening when the results of the stress test of all the banks is being done.
The real problem is that there are banks that accepted TARP funds when they shouldn't have. Once they took that money the government gained a lot of power into the company. There is a time when government needs to stay out of business. People in Washington D.C. love to have control on these institutions because it gives them power. They can restrict or stop certain contracts or decisions from being made. If banks have the money to give back to the government then let them.
That would be to normal. It got to the point where stocks fell so fast and hard and the economy was tanking because there was talks of banks being nationalized. That caused consumers to go crazy and scared everybody. Fear can be very scary in driving a market. Talk of these big banks being insolvent is ridicilous and talks about banks being completely controlled by the government is socialism.
TARP has greatly benefited the governments ability to control what happens in the banking sector. It was passed into law so fast and was merely nothing but a bunch of ink. Now that the immediate crisis is over, the government is ending up as the real winner. If banks were able to pay back the money at their own free will that would diminish the governments role in private sector. That's the problem with the entire concept of TARP.
Today, Bank of America and Citigroup have reported profits in the first quarter and still the market fell significantly today for the first time since it bottomed in early March. There's a lot of questions and curiousity surrounding the governments stress test on all of the banks. Many investors are eagerly awaiting the results to see what the verdict is.
This country is still in a recession and the government has put itself in a corner when dealing with these banks. People are very interested in the financial sector and where it goes from here. How the government handles the bank situation will have a huge impact on where the market goes from here. The issues surrounding TARP and the banks that received funds from the government is far from being over.
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