No returns: Banks' offer to pay back TARP should be a non-starter

As I wrote earlier, some of the largest recipients of Troubled Assets Relief Program (TARP) money want to pay it back. TARP was originally designed to buy toxic waste from banks, but it turned into a plan to put capital into banks in exchange for senior preferred stock. Since TARP limits how much banks can pay executives and employees, the banks want to return the money so they can get a competitive advantage over banks that can't pay afford to pay it back.

How so? If a bank pays back the TARP, it will no longer face limits on how much it can pay its top executives and it won't have to cut back on corporate jets and multi-million dollar office renovations. TARP-free banks will then be able to raid the TARP-laden ones for any top talent with a soft spot for indoor driving ranges and not having to wait on line for the 6 A.M. out of O'Hare.

Does this mean that banks want to stop getting taxpayer money altogether?


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