Treasury Gets a Pound of Flesh, at Last

Here’s an encouraging bit of news: it turns out Treasury has been smarter than many had expected in pushing the banks to pay up for the privilege of being bailed out.

You can read today’s testimony by the deputy special inspector for TARP (SIGTARP) here, and you can read my article on this Wednesday at the Fiscal Times.

Oddly, the SIGTARP’s main message was to whine about the lack of transparency and how hard it was for investigators to figure out how Treasury was negotiating with the banks. But the striking part is how cagey and successful Treasury officials were in persuading banks to pay top dollar to buy back stock warrants they gave the government when they got their TARP loans.

When American Express offered to buy back its warrants for $260 million, Treasury rejected the offer and Amex came back with $340 million — way more than Treasury itself had estimated the warrants were probably worth. Same thing for Morgan Stanley, which bumped up its offer from $900 to $950 million.

A chart compiled by the SIGTARP shows that Treasury rejected almost all the banks’ initial offers and got them to come up with substantially more money.

Admittedly, it’s just icing on the cake — $6 billion so far from warrant repurchases, on top of about $189 billion so far in principle and interest payments.

But hey — Treasury appears to have reaped at least full value and maybe more on warrants that are notoriously difficult to value and that the banks tried mightily to buy back for as little as possible.

A small victory.

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