Oberg: Critics Off the Mark on TLGP

This story was originally published on RealMoney at 8:30 A.M. on Monday, April 27.

Let's wade once more through the alphabet soup of crisis-initiated federal programs. This time, let's examine the Temporary Liquidity Guarantee Program (TLGP).

This is the FDIC program established to help financial institutions borrow in the capital markets when activity had frozen. Note that while markets are seemingly on the mend, we are still trying to find the new "normal," so the program is useful for getting credit markets flowing and has been extended until the end of October. Of all the programs launched since last September, this could arguably be one of the most valuable and least controversial.

However, Andrew Bary, Floyd Norris and others have been critical about these FDIC loan guarantees, whether or not these are a "sweet deal" for banks, whether or not these loans should be paid back and mature in order to "de-TARP" and so forth.

This may be as misguided as those who view the AIG(AIG Quote) intervention as nothing more than a straight cash transfer to counterparties rather than fully seeking to understand the transactions beyond the sound bite. (My previous piece on that received a lot of comments, both positive and negative. I particularly enjoyed the letter that said "Die!" -- received on Easter Sunday, no less.)

The criticism has been that banks are still benefitting from government largesse with regards to being able to issue debt at advantageous costs, given the FDIC guarantee. To a certain extent that is true -- there is no denying that banks are able to issue debt at a cheaper cost than would be otherwise available; however, the relationship is much more symbiotic than parasitic.

What people seem to gloss over is that the banks are paying an insurance premium to be able to participate in this program. The fees raised by the FDIC through the TLGP project to nearly $6.9 billion through April 13.

This figure is worth mentioning because this is money that, if not needed to make good on the TLGP guarantee, will benefit the Deposit Insurance Fund. The DIF is what backs all of our bank deposits, so the funds raised through the TLGP can potentially help support the FDIC's larger mission.