Back in February, I noted that TARP had yielded a profit for the US Treasury of $20 billion. Notwithstanding the fact that the program is now down to the "harder-to-exit" smaller banks that might not be as attractive to potential purchasers of the preferred stock that the Treasury still holds, the profit figure is now up to $23 billion. While that's a drop in an ocean of federal debt, it's nothing to sneeze at. What I said earlier, I'll say again:
Opponents of the original TARP will never admit that they might have been wrong about the need for the program to save the economy from ruin. The fact that the Treasury has already made a profit on its original TARP investments ($20 billion so far, according to the linked article) is meaningless to them. I guess they wanted to let the "creative destructive" forces of a "pure market system" work their magic on all of us, and if we ended up standing in bread lines, they'd say that was a hard lesson learned and that we're all the better for it. I don't have the energy to tell them that not only is God dead, but so is Ayn Rand.
Even if the remaining $8 billion is written off (it won't be), the program still ends up in the black. Not bad for a much-maligned "bailout."
Of course, the Treasury may have a problem getting potential investors to pay as much as they might have in future TARP stock auctions now that one bank has stiffed an investor on TARP stock dividends (paid subscription required). The fact that those dividends are noncumulative makes it risky when small banks decide that, while it was their patriotic to pay the US Treasury, it's perfectly fine not to pay investors who bought their TARP stock from the Treasury Department.
"This is a good lesson as to what risks buyers need to be aware of with small banks," said Doug Faucette, a lawyer at Locke Lord. "That's why they call it stock."
I think that's an astute observation. However, I wish that bank the best of luck if it ever finds itself in need of capital from private equity investors in the future. PE hates it when Main Street starts acting just like Wall Street.
