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Mortgage & Housing Market News from HSH.com
May 13th, 2009

Update1 Will Taxpayers Ever See Their TARP Money?

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Treasury Secretary Timothy Geithner announced plans in a speech today to now make TARP funds available to the nation’s smaller banks via the money currently being repaid by the original TARP institutions. The program, which was designed to bolster only the nation’s largest banks, left many of the smaller, mid-sized institutions feeling neglected. To their credit, most community banks wisely steered clear of the “exotic” loans and lending practices that contributed to the financial crash.

Our first question/reaction is “why give small banks TARP funds?”

The entire point of TARP was to inject emergency capital into institutions that could have toppled our financial system if they failed. We think many would agree that these once sarcastically-considered “too small to care about” institutions, as the Motley Fool jokes, won’t exactly send the country into a tailspin if they close their doors. But on the other hand, “They also serve thousands of small and midsized businesses that may be locked out of the lending market.”

The Fool brings up another good point: TARP isn’t really a positive thing for these banks either. Again to their credit, many “smaller” institutions withdrew their TARP applications months ago because they were unwilling to put up with the program’s infamous baggage. Besides taxpayer dollars, the TARP also brings salary restrictions and burdensome government-loan programs with it.

Small to mid-size banks were never exclusively shunned from the program — it’s just that the original nine were the nation’s largest. Since we haven’t read anything definitive which states that community banks are on the verge of a collapse, we again ask “why?”

The Treasury as already stepped up TARP’s pay-back restrictions — seemingly keeping the funds on the banks’ balance sheets for longer and longer, and now they’re offering our money to banks who may necessarily not even need it.

When will taxpayers ever see their TARP money returned?

Click here to read Mr. Geithner’s full speech before the Independent Community Bankers of America Annual Washington Policy Summit.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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