Hey, it worked for GM. And while it is true that money is fungible, the real issue here is about the laundering of risk. The money used to pay back TARP has far fewer restrictions than the original TARP funds. But there’s nothing to see, just move along please. /s
If I am not mistaken, there were many banks that did not want to take TARP money but were FORCED to take them anyway ( Wells Fargo comes to mind as one of them ).
The Treasury and the Feds’ reasoning for telling them to do so is to avoid panic withdrawals from weaker banks into stronger banks.
Banks that take TARP money will further panic depositors as it will create the impression (correct one of course ) that they will collapse without government help. This will cause a huge INFLUX into the stronger banks that don’t need government bailouts, which of course will destroy the rationale for saving the weak banks in the first place.
Hence, EVERYONE gets government money to give the impression that EVERYONE NEEDS government bailouts. Depositors can’t run anywhere.
When the system stabilizes and the panic blows over, stronger banks can then return whatever money the government forced them to take.