Nomi Prins has little respect for Timid Tim calling the banks repayment of TARP funds a step in the right direction when the banks are simply using other funds they borrowed from the government to make the repayments:

Banks can also borrow cheaply if they have an FDIC guarantee—and then use that cheap money to do things like pay TARP back, which explains why their stocks have gone up. The government opened this door on October 14, 2008, with the FDIC’s Temporary Liquidity Guarantee Program. The idea was that it would prompt banks to start lending to their customers again. But that didn’t happen. Instead, cunning institutions used the new program to raise cheap capital for their own needs. By changing its status to a bank holding company, Goldman Sachs was able to secure $29 billion of that FDIC-backed debt; Morgan Stanley raised nearly $24 billion.

Considering the true size of the bailout, the continued loan deterioration, and the weakness in the overall economy and job market, the economic signs simply aren’t that positive. For Geithner to pretend that a few banks paying back federal money with other federal money is an encouraging sign is to miss all of them.

It’s a shame the American people don’t see through this sham.

AP reports the government is now planning to redirect TARP money that is repaid by the big banks to community banks:

“The administration first indicated that the repaid funds would be used for further injections earlier this month when regulators announced the results of the “stress tests” conducted on the nation’s 19 largest banks. Those tests found that 10 of the banks, including Bank of America Corp. and Citigroup Inc., needed to raise additional capital to survive a worsening recession.

Several members of Congress, including Rep. Brad Sherman, a Democrat, contend that the law creating the TARP does not allow the money to be invested a second time. Instead, repayments should be used to reduce the national debt, they say.”

Swamp Report sees this as the Administration’s attempt to maintain a permanent fund to reward cooperation by industry… and, since it can be used for auto companies, as well as banks, there is virtually no limit on what the government can use this revolving “evergreen” fund to do.  Option ARMageddon doesn’t like the idea either:

“The Obama administration will use bailout money repaid by large U.S. banks to provide additional capital infusions to community banks, Treasury Secretary Timothy Geithner said Wednesday.” The article notes criticism from Congressman Brad Sherman, who says the TARP Act doesn’t permit TARP money to be reinvested.  This is a dangerous precedent when you think about it.  In accounting parlance, the TARP could become a kind of permanent “cookie jar,”  i.e. a pool of capital premanently available to the administration to rescue favored financials.  It will hard to organize opposition to such a plan: who could be against helping “community” banks.  It’s only fair they get their piece after the big guys got rescued, right?  Ugh.

WSJ reports that the Treasury has committed to give TARP funds to several Life Insurance companies:

“The life-insurance industry is an important piece of the U.S. financial system. Millions of Americans have entrusted their families’ financial safety to these companies, so keeping them on solid footing is crucial to maintaining confidence. If massive numbers of customers sought to redeem their policies, it could cause a cash crunch for some companies. And because insurers invest the premiums they receive from customers into bonds, real estate and other investments, they are major holders of securities. If they needed to sell off holdings to raise cash, it could cause markets to tumble.”

“Life insurers had for a time seemed to be somewhat immune from the credit crisis, since they tend to invest in relatively safe assets in order to match their liabilities. These companies got into trouble for two main reasons, both tied to the weak financial markets.

First, many of the roughly two dozen insurers that dominate the variable-annuity business made aggressive promises on these popular retirement-income products, guaranteeing minimum returns, no matter what happened to the stock market. With the market’s decline, the issuers are on the hook for big payouts, though most of the payments won’t come due for 10 or more years. Second, the insurers also have lost money on the investments in bonds and real estate that back their policies.”

Pre-market prices of many Life companies are up this morning.  It seems sad that stock prices react positively to news that more companies need federal bailouts.  The Insurance companies will now be subject to the same (uncertain) executive pay restrictions and other possible political whim as banks who take TARP money. The oligarchy’s control written about by Simon Johnson is expanding…

It’s perhaps not surprising, but notice that the new flexibility of the Life companies to value their asset prices according to “mark to fantasy” is not forestalling the need for real cash.

Elizabeth Warren, chair of the congressional oversight committee monitoring the government’s $700B Troubled Asset Relief Program (TARP) bank bailout plan, will call for the removal of top executives from Citigroup, AIG and other institutions that have received government funds in a damning report that will question the administration’s approach this week, according to The Observer.  Warren, a Harvard law professor, will also call for equity holders of these companies to be wiped out and believes the “open-ended subsidies”  that treasury Secretary Geithner is giving to the banks are inherently dangerous.

She said she did not want to be too hard on Geithner but that he must address the issues in the report. “The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous.”

The report will also look at how earlier crises were overcome – the Swedish and Japanese problems of the 1990s, the US savings and loan crisis of the 1980s and the 30s Depression. “Three things had to happen,” Warren said. “Firstly, the banks must have confidence that the valuation of the troubled assets in question is accurate; then the management of the institutions receiving subsidies from the government must be replaced; and thirdly, the equity investors are always wiped out.”