Senator Reid Pushes Loophole That Would Increase Tarp Bailout Price Tag Above $700 Billion

I've been arguing from day one that the Tarp bailout program was never actually limited to $ 700 billion. Specifically, I warned that - because that amount was only the cap on the amount lent out at any one time - the funds could be recycled so that the total price tag could end up much higher.

The uses of the Tarp money have changed since I started writing about the issue. But the issue is still there.

Last week, Senator John Thune introduced legislation which would have prevented the "recycling" of Tarp bailout funds. The Senate rejected the bill.

As Huffington Post writes:

The law that created the TARP says that any revenues from the sale of a bailed-out bank's troubled assets should go to the reduction of the public debt. But the Treasury Department says that principal repaid by banks participating in the Capital Purchase Program is fair game.

Rep. Brad Sherman (D-Calif.) was the first to question the legality of the Treasury's plan to recycle bailout dollars. "If you look at the law, it's pretty clear any money returned from these banks goes into the general fund of the United States and not a revolving bank bailout fund," said Sherman in an interview with the Huffington Post. The law is clear that revenues from the sale of troubled assets should go back to the taxpayer, but it's silent on repaid principal...

But Thune's failed amendment may have provided a bit of backdoor justification for recycling. After last week's Senate vote, Majority Leader Harry Reid (Nev.) said that, in light of the vote, bailout recycling should be allowed.

So Reid and the boys are now explicitly endorsing exactly what I warned about back in September: increasing the price tag for Tarp well above $700 billion.

Update: Bloomberg and others are calculating the actual amount of the bailout (including all programs, not just Tarp) at more than $10 trillion dollars.

Congressman Sherman gives some choice quotes here.