As we all know last fall thousands of banks rushed out for Tarp Money.  Unfortunately for them the rules on what to do with it were not clear and the Federal Government have change rules as the months have passed.  While it might have been cheap money, many banks found out they either did not need it or did not want it once the rules had changed.

Last week there were a slew of banks that wanted to pay the TARP money back.  The money was not free at a minimum the banks had to pay 5% for the money.  They have found in this economy making 5% can be difficult.  So as the bank prepared to give the money back, as of this blog, March 16, 2009, they found out that they cannot just give the money back.  Northern Trust took 1.6 Billion in Tarp funds and now the US Treasury will not just accept it back.  Talk about a prepayment penalty?

The  dally interest expense for Northern Trust is approximately $219,000 per day!  What a great deal for Uncle Sam!  While the idea of TARP can be debated until the cows come home, will someone at the top wake up fixed this problem ASAP.  In one week since Northern Trust has tried to "give" the money back, it has cost them over $1,400,000 in Interest Expense. Tick...Tick... Tick...  Did you know that if the banks pay income tax at the rate of 35% (which I would assume Northern Trust does), the federal government has just lost $536,000+ in tax revenue this week, by not allowing Northern Trust to repay the Tarp Loans. 

It is not all bad news for the government because they get the money one way or another, taxes or interest?  While TARP may not been the best idea, the US Treasury loaned out $350 Billion.  If my math is right at 5% interest, $1.4 Billion a month in Interest income is paid to the government.  TARP may be the best revenue raiser we have?

Who does not want our Country's economy to recover as soon as possible?  But typical government bureaucracy that will not let the bank repay these loans is just WRONG? TARP - Love it or hate, we are living it..

Dave Owens, CPA, CES, is managing member of Entrust Freedom, Entrust is the largest self-direct administrator in the United States.  To contact Dave please feel free to email him at owens@entrustfreedom.com or call him at 239-333-1031 x203.