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17th April 2009 Charles J. Brown
10:19 am

Do Not Pass Go. Do Not Collect $1.56 Trillion Dollars


Time to play compare and contrast, thanks to two articles from this morning’s WaPo.  First, a story on the big banks’ plans to return TARP money:

Jamie Dimon, the chief executive of J.P. Morgan Chase, said yesterday that he regrets accepting $25 billion in federal aid. He called the money “a scarlet letter,” pledged quick repayment and renounced further borrowing from the government, saying, “We’ve learned our lesson about that.”

But the company, which announced a $2.1 billion first-quarter profit yesterday, has not entirely had it with Washington.  J.P. Morgan said it plans to continue using a separate federal aid program through which it has borrowed more than $40 billion. . . .

The Treasury Department so far has invested slightly less than $200 billion in banks. Meanwhile, the Federal Deposit Insurance Corp. has helped companies, including J.P. Morgan, borrow more than $336 billion through the end of March, by guaranteeing to repay investors if the firms defaulted. And financial firms hold more than $1 trillion in emergency loans from the Federal Reserve.

Goldman Sachs declared a “duty” to repay the Treasury after posting a first-quarter profit. The chief executives of several large banks at a meeting last month urged President Obama to accept repayments. But no company has similarly pledged to leave the government’s other aid programs.

The explanation appears to be simple: Only the capital investments by the Treasury require the companies to make significant sacrifices, such as restricting executive pay.

But wait — it gets better.  Here’s the other story from WaPo (h/t Felix Salmon):

At a meeting with executives from four of the nation’s largest banks earlier this month, the chief of the government’s auto task force, Steven Rattner, delivered a message that shocked some in the room.

To save Chrysler, he told them, the four banks and several other financial firms would have to surrender their claims to most of the $7 billion the automaker owed them. And what would the banks get in return for this sacrifice? Nothing.

“People’s jaws just dropped,” said a person familiar with the discussions.

The banks — J.P. Morgan Chase, Citigroup, Morgan Stanley and Goldman Sachs — have all since balked at the government’s proposal. This week, they are drafting a counteroffer.

Let’s review, shall we?

1.  The government has loaned banks roughly $1.56 trillion to prevent their collapse.

2.  Of that, only $200 billion comes from the TARP program; the rest comes from FDIC and the Federal Reserve.

3.  J.P. Morgan Chase and Goldman Sachs both have announced plans to return the TARP money, saying that federal loans are “scarlet letters” that have hurt business.

4.  That said, and despite their executives’ public statements to the contrary, both banks will not return the FDIC and Fed loans.

5.  The money they’re returning has restrictions on it, while the money they’re keeping doesn’t.

6.  Meanwhile both banks (and others) are refusing to accept the government’s terms when it comes to settling Chrysler’s $7 billion debt.  As Salmon notes, the government has offered 15 cents on the dollar, while the banks want 50 cents on the dollar.

7.  To put that in number terms, the government wants to give the banks $1.05 billion for a debt that the banks otherwise will not recover — even if Chrysler is liquidated — but the banks won’t accept less than $3.5 billion.

Let’s boil this down even further.

Banks want your money.

But they don’t want any strings attached.   (Try suggesting similar terms next time you apply for a car loan or a mortgage.  Chances are your local banker would laugh you out of the room.)

And they’d rather see thousands of Americans lose their jobs than accept an additional $2.45 billion in losses — a figure which, coincidentally, happens to match roughly the $2.1 billion profit that one bank, J.P. Morgan Chase, made in the first three months of 2009.

I wish I could say I’m surprised.  But frankly, I’m not.

Go directly to Jail.  Do not pass Go.  Do not collect $1.56 trillion in taxpayer funds.

Image:  Rich Uncle Pennybags by PetroleumJelliffe via Flicker, using a Creative Commons Attribution-No Derivative Works 2.0 license.

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This entry was posted on Friday, April 17th, 2009 at 10:19 am and is filed under global economy, politics, pop culture. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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  1. 1 On April 17th, 2009, Ross H said:

    well put Charlie.
    and with respect to those job losses, in case anyone at the banks is curious, they can check out this handy-dandy app from Slate (scroll down, wait a sec for it to fully load, and then hit ‘play’)
    http://www.slate.com/id/2216238/
    (you might notice a particular regional emphasis)

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