In no way do I profess to be an expert on the topic of TARP and government bailouts. For that matter, I don't think many people in the entire country, even leading economists and political scientists, can make that claim. I offer this post merely as an observation about a question I recently had.
I diligently followed the TARP debate and happenings early on. However, at this point there have been so many versions, revisions, and debates about the TARP program that I have lost track.
I do know that recently banks have begun repaying TARP funds to the federal government. My limited understanding of the TARP program is that the funds used to purchase troubled assets from the banks is money borrowed from the American taxpayers. I believe there is a recoupment clause written into the TARP program legislation.
How exactly does TARP recoupment work? Does it only get repaid to taxpayers once all TARP funds have been repaid to the federal government? A claim on Wikipedia states that TARP funds will be repaid after 5 years.
I often hear people - particularly Republicans - talk angrily about how much money the government is spending on the bailout programs. However, I rarely hear people describe these spending programs as loans made to banks by the American taxpayers. Viewed through this lens, the question people should be debating is what interest rate they will see on their return once TARP funds are repaid by the banks, and when exactly they will receive their dividends. As for who pays the interest on the TARP bailout loans, it should be the banks.
It is clear from observing the healthcare debate that the federal government is currently catching a lot of heat about perceived overspending -- not just from Republicans but also from independents and conservative Democrats. Why doesn't the government re-structure the TARP recoupment clause so that American taxpayers receive repayments sooner than 5+ years down the road? This would help more people understand the difference between spending and loaning.
USAA insurance company has an interesting model that seems like it would make sense for the repayment of TARP monies to taxpayers. Every year, if USAA's total capital exceeds its current and projected requirements, the Board of Directors authorizes a Subscriber's Account distribution. This year, USAA returned $490 million in distributions and dividends to its membership. Why not use this model for TARP recoupment so that all monies repaid in 2009 are repaid to American taxpayers in the form of dividend checks in 2010? And onward for 2011, 2012, etc. until all TARP funds have been repaid to the American taxpayers with interest paid by the banks.
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