Harry Bosch
Contributor
I'm not following you exactly. The government forced all the large banks to take the bailout, so they couldn't put too many preconditions on taking it. What is DIP financing? My bank wasn't paralyzed dealing with TARP. We simply wanted to pay it off as quickly as possible due to it's negative conations.
I'm not talking about what did happen but what should have happened. The government should not have forced banks to take TARP. Any bank that took it should have seen its equity wiped out and its assets taken over. DIP financing is debtor-in-possession financing. It's financing that companies can get to help them through a restructuring. It is going to be superior to the pre-existing financing in the credit stack.
https://en.wikipedia.org/wiki/Debtor-in-possession_financing
The point of all this is to make the government bailout a true option of last resort, and to preserve as much of the value of the taxpayers money as possible.
Well, Tarp really wasn't a bailout of the banks. The purpose of it was to install confidence that the economy wouldn't collapse. The purpose was to say that the government won't let it fail. When banks think the end is coming they stop lending. In the commercial world, banks can turn down a loan for any reason. Before TARP, the banks were scared. They weren't lending. This was making the economy worse. Very few banks would have accepted the terms of a bailout as you describe above. Most would have just hunkered down, and sat it out, until the economy recovered. IMO, this would have delayed recovery significantly.