Mortgage blog

Wow, it is great that some banks that received taxpayer money from the TARP (trouble asset relief  program) have been granted permission to pay the funds back early. What good news.....OR is it??

To get TARP funds, the banks had to issue NEW stock to the US treasury.This new issuance in its own right caused many bank officers to profit under "stock dilution clauses" but that is another story for another day.

So when you hear that such & such bank has paid the TARP money back early, what has really happened is the bank REPURCHASED the stocks & warrants it had issued to get the funds in the first place.

But, have you checked out bank stock prices lately??? The Bank gets to pay TODAYS share price, not the price that the shares were issued at! Surprise! The taxpayer once again takes all the risk of a majority shareholder, yet receives none of the rewards. The Bank gets to shore up its bottom line, get rid of its troubled assets & pay us back with deflated stock prices.

According to a recent Time Magazine article:

Banks exiting the TARP program are also looking to buy back the warrants they issued to the government in order to receive TARP funds. David Hendler, an analyst at CreditSights, "Banks may have to spend substantial sums to pay back their TARP warrants," says Hendler. . What's more, if the banks buy back the warrants now, while bank stocks are still relatively low, it could be much cheaper than waiting to do it once the share prices have recovered."

Such a deal! for more on this issue , try the following links:

http://www.time.com/time/business/article/0,8599,1900049,00.html

http://www.businessweek.com/investing/wall_street_news_blog/archives/2009/06/big_banks_pay_b.html?chan=top+news_top+news+index+-+temp_news+%2B+analysis

http://www.bloomberg.com/apps/news?pid=20601087&sid=a5XKm1xjWNfI 

In times like these, we all need all the help we can get, but its seems like wall street keeps getting the bailouts while main street has to fend for itself.

What can you do? Support small business. As the BIG guys get money for free, the rest of us have to not only carry our own load, but we now foot the bill for this corporate welfare. You can make a difference, patronize your local small business.