Academic

Special Vehicle-ing Your Way Around the TARP?

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

The Post runs word - or perhaps it might best be called a trial balloon - of an administration plan to, inter alia, get the PPIPs and TALFs and so on out of the executive compensation standards, et al, required by the TARP by funneling the money through SPVs:

Pretty, or, in my view, highly sketchy.  We will have to see the details, but simply passing TARP dollars through special entities and thereby removing those dollars of all TARP requirements is hardly the sort of thing, say, our tax code tolerates, if you're looking at private businesses.  It would be a thumbing of the nose at Congress.  It doesn't seem very consistent with the state action doctrine, at least the Wilmington Parking Authority line of cases.  I talked to the Post about this at some length, and I couldn't figure out how the government thought it would work.

Don't get me wrong.  At some point, TARP requirements stop following the money.  If Treasury gives billions to PNC, and PNC loans some of it out to USX, it's not as if the steel company has to do exec comp, etc, the TARP way.  And it's an interesting question as to whether new entities 10% funded by TARP, 50% by the FDIC, and 40% by private equity should be subject to all of the statutory reqts.  But Treasury appear to want to cleanse its money of TARP requirements simply by creating a lending facility (which it probably would do as a matter of course anyway - the Fed does so).  If so, Treasury wouldn't need to use the money to get banks lending, it could use the money for any and every purpose it wanted - bonuses for the C schedule employees, say.  And that would be sneaky indeed.

Full post as published by Conglomerate on April 05, 2009 (boomark / email).