CNBC's Haines uses false analogy to mock TARP repayment requirement

During the May 6 edition of MSNBC's Morning Joe, CNBC anchor Mark Haines mocked a new rule that will reportedly require banks to pass a test before they can repay funds they received from the Troubled Asset Relief Program (TARP). Haines described the rule by stating, "[I]f you're a bank and you want to repay that TARP money, you have to prove that you don't need it." Haines then said, "I'd like to pay off my mortgage -- 'Oh, no. You've got to prove you don't need it anymore.' " But in analogizing TARP assistance to home mortgages, Haines did not note that many of the banks holding TARP money have also utilized a Federal Deposit Insurance Corporation (FDIC) program to help them raise money, and that the new rule would require banks to show they are not dependent on this separate program of government assistance before returning the TARP funds that come with executive pay restrictions and other strings attached.

The FDIC program enables financial institutions to raise money by guaranteeing certain kinds of debt issuances. This Temporary Liquidity Guarantee Program (TLGP) was created in November 2008 "to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts, and certain holding companies." As of March 31, banks had $336 billion of debt outstanding under the TLGP.

In a May 6 article, The Wall Street Journal provided the context surrounding the new rule showing that, contrary to Haines' suggestion, the repayment of TARP funds is not analogous to the repayment of a mortgage:

Several banks have been chomping at the bit to return their TARP funds, in part to prove their financial health, but also to escape from tough rules governing executive compensation, dividend payments and stock repurchases.

Earlier this year, Congress mandated that banks be allowed to repay TARP in consultation with their primary regulator. But government officials want to ensure banks are healthy enough to forgo government assistance.

Officials believe most big banks are well-capitalized today, but are concerned about their ability to continue making loans if economic conditions continue to deteriorate.

[...]

Government officials don't want banks to repay the money, only to find they are not healthy enough to continue lending.

As a result, firms will have to show they don't need the FDIC guarantee to issue debt, such as by raising money without the guarantee.

Several major banks have already taken steps to show they don't need the assistance. J.P. Morgan Chase & Co. recently sold $3 billion, and Goldman Sachs Group Inc. sold $2 billion, while BB&T Corp. issued $800 million, and Northern Trust Corp. issued $500 million.

By contrast, various units of Citigroup Inc. issued a total of $7 billion in FDIC-backed debt last week.

The program, created in October, allowed banks and holding companies to issue certain senior unsecured debt with a government guarantee, for a fee. The purpose was to facilitate lending between banks and make it easier for lenders to issue debt, because investors knew there was a government guarantee on the offering.

The requirement to forgo the FDIC guarantee would make it harder for such firms as Citigroup and Bank of America Corp. to get out of TARP, since they are more reliant on government aid. Analysts say those banks are the least likely to pay back TARP anytime soon.

From the May 6 edition of MSNBC's Morning Joe:

HAINES: Bank of America needs $35 billion more --

WILLIE GEIST (co-host): Oh boy.

HAINES: -- as a result of the stress test. This is unofficial. The official results of the stress test -- gonna come out this afternoon, probably after the market closes. Despite this news, the market's not hurting. The futures are indicating a higher opening.

Oddly enough, the reverse is also true. I mean, Ben Bernanke was almost optimistic yesterday in his testimony to Congress. Market didn't react that much to that either. So, we're kind of waiting for somebody to make up their minds which way they want this market to go.

Anyway, Bank of America needs to raise 35 billion. They have set new rules. If you want to repay -- if you're a bank and you want to repay that TARP money, you have to prove that you don't need it.

GEIST: Wow.

HAINES: I love it. I'd like to --

JOE SCARBOROUGH (co-host): Yeah. Haines provides -

GEIST: That's great.

HAINES: I'd like to --

SCARBOROUGH: Haines provides his own laugh track. I love it.

HAINES: I'd like to pay off my mortgage -- "Oh, no. You've got to prove you don't need it anymore." All right, so that's the way it looks right now, guys.

GEIST: There you have it.