Understanding TARP

[naaman fletcher]

As all of you read about the TARP bailout the implication is that the gov't is buying shares in these companies. While most of us are against the bailouts, at least we figure "hey, the taxpayers will get an upside".

That's not really true.

I have a copy of the TARP terms.

The gov't buys preferred shares that pay 5% dividends. Terms include that they can be redeemed immediately if the receiving Bank does an equity offering that meets certain terms (that is, the gov't would rather the companies raise private money). After that, there is a penalty to redeeming in the first three years.

The kicker is this:

After 3 years the shares can be redeemed at Par. What this amounts to then is a 3 year loan at 5% interest.... to a bunch of people with worse credit ratings than your crazy trailer park cousin.


There are still some warrants for the gov't to buy up to 15% of the money originally injected.. i.e 1 billion injected also gets warrant up to 150 million worth of shares. But: that is ultimately far less than the public is led to believe.

Call your congressmen. There should be no bailout, but if there is, then thhe taxpayers should benefit more from the upside.

[lildreamer316]

1. Kick

Interesting info; thank you for your insight!