The Treasury Department Begins Stretching Out The $125B TARP
Monday, October 27, 2008PAUL KANGAS: It could be the shot in the arm that big U.S. banks have been waiting for. The Treasury Department announced today that it will begin sending $125 billion to the first nine banks that signed up for its recent rescue plan. And as Washington bureau chief Darren Gersh reports, the so-called TARP may soon expand to cover other sectors.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Auto makers may be next in line for Federal help. After all, White House spokeswoman Dana Perino says GM, Ford and Chrysler are also vital to the economy.
DANA PERINO, WHITE HOUSE SPOKESWOMAN: Auto makers do have financing arms. Many of them do. And it's possible that some of those financing arms could be a part of the rescue package, the TARP, as they call it, at the Treasury Department. So that's why Treasury has been in contact with them.
GERSH: While it appears automobile financing arms would not qualify for a direct government cash infusion, they might be eligible for a Treasury program that purchases toxic financial assets. Congress also recently approved $25 billion in loans for car makers, money that might be used to help arrange a merger between GM and Chrysler. If this sounds like the Federal government is picking winners and losers, analyst Jaret Seiberg says that's because it is.
JARET SEIBERG, FINANCIAL SERVICES POLICY ANALYST, STANFORD GROUP: Look at the alternative. The government doesn't stabilize the banking system. The government doesn't stabilize the commercial paper market. The government doesn't help the auto makers. We end up with massive unemployment. We end up with people losing their homes and we end up without a functioning banking system. That's not attractive.
GERSH: Many financial institutions are applying for Federal funding, because they don't want customers wondering why their bank is not on the Treasury list. Maryland's EagleBank has earned a sound rating of four stars from bankrate.com. Earnings were up 17 percent last quarter. But EagleBank Chairman Ron Paul still considers the Treasury offer too good and too important to pass up.
RON PAUL, CHAIRMAN AND CEO, EAGLEBANK: We believe that only healthy banks are going to qualify for this and not only will it be the good housekeeping seal of approval as far as EagleBank is concerned, but it also will shore up the balance sheet significantly, which is from a public's perspective very important for us.
GERSH: Life insurance companies such as Metlife, which have a Federally regulated holding company, may also soon join the Treasury list. Scott Talbott lobbies for banks, auto lenders and insurance companies. He argues insurance companies deserve help, because they are a major factor in financing projects like apartments and office buildings.
SCOTT TALBOTT, SR. VP GOVERNMENT AFFAIRS, THE FINANCIAL SERVICES ROUNDTABLE: One of my member companies said last month they lent $32 billion. This month they're lending zero because the liquidity has dried up. So that is the exact target of an institution that we want this money to go to.
GERSH: The nation's nine biggest banks will be getting $125 billion from the Treasury in a few days. And today, 11 regional banks announced they'd soon be getting $22 billion from the Treasury. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
