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Given that Wall Street functions largely as a “Land of Lemmings” where one idea, regardless how good or bad, is usually criticised and then copied if it is seen as potentially beneficial to either personal pecuniary interests or corporate revenue generation. Right now, many on Wall Street believe that repaying TARP money certainly addresses the first point and could serve the second (or give a competitor a leg up if not followed). The article attached goes into detail on many of the implications of possible paybacks. One that seems to be missing is details on how many of the banks can raise the capital quickly. One needs only look to a bank’s loan book for the answer. To the extent that a bank can find a way not to “roll” a large revolver, use a technical covenant default to reduce exposure, not reapply toxic loan sales to new credits or generally accellerate a cutback in corporate lending (because that’s where the large loans are and Congress is not focusing on corporate liquidity), it can free up capital for repaying the government. Unfortunately, the casualty of this is a major reduction in corporate credit just when we need to help corporations make it through the downturn with available loan capital. In no small way is this part of the “unintended consequences” we addressed in our earlier piece on Congress’ compensation legislation. Even if the bill does not become law, the simple passage by the House has put the fear of God into banks. The really bad news is that the Lemmings of Wall Street may march their corporate clients into the sea to rid themselves of the yoke of TARP!
Lieutenant Island Views : Commentary About Finance, Politics and Baseball 
If giving out this money was a good idea… questionable I know…. What kind of negative impact could banks lining up to return the money while we are still in this recesssion have?
Comment by federalistblogs — March 24, 2009 @ 5:30 pm
Is your question of a rhetorical nature, a trick question or a polite way of mocking my prose, i would like to know.
TARP was probably a decent idea that needed to be flushed out before it was voted on or executed. It’s problems started with Paulson’s totally reckless approach to selling it (the world economy is collapsing, I am the only hope so give me a free hand) to it’s thoughtless and disingenous execution (forget about buying toxic assets, I need to give out money to financial institutions with no strings attached) were enough for him to be in my all world Hall of Economic Shame. Returning the money by cutting corporate lending, if that’s how it is done (and i see that as a distinct possibility) makes a poor Paulson execution worse. As i intimated in my earlier comment on Congress’ compensation legislation and in the above post, the economy can’t have a major decrease in corporate lending. To do it so banks can pay guys more is utterly shameless and a hideous outcome from an ill thought out Congressional Bill (which i am sure was not contemplated when the bill was written). i hope this response is helpful.
Comment by bosox4 — March 24, 2009 @ 7:27 pm