Monday, May 4, 2009

The Persistent TARP Migraine; Will Ending 'TARP' be Equivalent to President Nixon's Supposed Temporary 'TOLL' Road Plan?

WASHINGTON (Dow Jones)--The U.S. Senate defeated a measure to force the Treasury to accept repayment of Troubled Asset Relief Program funds from banks deemed well-capitalized by their regulator. The measure, which failed on a 39-53 vote, also would have stripped a requirement that TARP recipients repurchase warrants owned by the federal government at market prices as a condition of the repayment, smoothing their exit from the bailout program. Sen. David Vitter, R-La., offered the measure as an amendment to popular legislation to bolster the banking system and revamp federal mortgage programs. The legislation is set for a vote as early as Tuesday. Some banks, tiring of the strings attached to government aid, are seeking to return TARP funds. However, the Treasury, which has veto power over the repayment, has signaled it might not let some leave the program. Banks have been lobbying the Treasury to escape their contractual commitment to buy back the warrants at the time they repay the funds. The Senate will likely vote Tuesday on another amendment, offered by Sen. Jack Reed, D-R.I., to remove the repurchase obligation for banks leaving TARP. Senate Banking Chairman Christopher Dodd, D-Conn., argued that Vitter's proposed criteria for repayment was too broad, and would allow certain banks to return capital they might later need to continue weathering the economic downturn. "While being well-capitalized is very important, if you limit it to that and that could put at risk the whole economy," Dodd said on the Senate floor. The Senate rejected another measure, also offered by Vitter, to mandate that the Federal Housing Administration's over-arching priority is to maintain its own solvency. The measure, which failed on a 36-56 vote, comes as rising defaults of FHA loans have raised the possibility that the program may need a taxpayer subsidy for the first time in its 75-year history. -By Jessica Holzer, Dow Jones Newswires; 202-862-9228; Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: You can use this link on the day this article is published and the following day. (END) Dow Jones Newswires May 04, 2009 18:21 ET (22:21 GMT) Copyright (c) 2009 Dow Jones & Company, Inc.- - 06 21 PM EDT 05-04-09

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