Will The Government Reject TARP Payments From Goldman And Morgan Stanley

It is no secret that several large banks want to pay back the TARP money that they took from the government in some cases against their will.

Goldman Sachs (GS), Morgan Stanley (MS), and JPMorgan (JPM) seem to have the balance sheet strength to repay their TARP funds back. The question is whether the government will take it.

The FT reports that Goldman and Morgan Stanley are ready to make their payments now, which will raise the question of whether the Treasury will invoke the comments of its leader Tim Geithner regarding his ongoing concerns about the health of the entire US financial and credit system. He believes that if the economy does not improve, the banks may have to return to the government for a new round of capital needs.

The Geithner concern is a red herring. On the small chance that the most healthy banks get in trouble again, the TARP facility will be there to help them. In the meantime, the Treasury has the chance to receive taxpayer money that had been at risk and probably is no longer. The outcry that America’s largest financial institutions are being saved by the federal government can begin to die down. The chances that individual taxpayers may see their annual bill to the IRS raised because the financial system is a wreck will quickly go away.

Treasury has the chance to redeem its preferred shares for tens of billions of dollars. It should take the money and run.

Douglas A. McIntyre