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Banks to Geithner: It's Payback Time

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The air is buzzing with stories about the talks between the Treasury and multiple major banks that want to pay back funds borrowed through the Take our Aid or you'll Regret it Program ... wait, I mean the Troubled Asset Relief Program.

While Goldman Sachs (NYSE: GS  ) , JPMorgan Chase (NYSE: JPM  ) , and Morgan Stanley (NYSE: MS  ) are the primary names being tossed around when it comes to TARP repayment, others such as State Street (NYSE: STT  ) and US Bancorp (NYSE: USB  ) that were "cleared" by the stress tests could be hot on their heels.

Obviously this is important, right? It's about the bailout, financial institutions, and good ol' Uncle Sam.

If we could only figure out why it's important.

A financial market tell
Many folks will likely peg this as a sign that the U.S. financial system has finally responded to the smelling salts. The fact that these major banks are ready to give taxpayers back their money and go about their merry way surely has to mean that they're in tip-top shape and ready to get back to the business of banking.

To some extent this is true. The stress tests may not have been all that stressful, but in this Fool's opinion they were at least adequate for judging the survival prospects of the major banks. So if the Treasury gives firms like Goldman and JPMorgan the green light to toss back their TARP funds, then it would give me a pretty reasonable assurance that these companies won't end up in the concrete shoes that sank Lehman. (Mind you, that doesn't necessarily mean that the banks returning TARP funds are ready to lend like normal and prosper.)

What payback's really about
In the end, though, the reason that banks have been itching to unload TARP funds is that the government has been absolutely awful for financial institutions to work with. From the outset of the TARP, it sounds like, many firms were forced to participate whether they wanted to or not.

Some real business consequences came with that TARP participation. Compensation and bonuses, for example, are limited. While there's no doubt that ill-advised compensation structures helped fuel the financial bonfire, the government seems like the absolute wrong entity to be trying to right this wrong.

At the same time, there have been restrictions placed on firms' ability to hire skilled foreign workers. And of course there's the continued specter of Congress retroactively changing the rules based on political whims.

It's no coincidence that Ameriprise Financial and Allstate (NYSE: ALL  ) recently turned down the "opportunity" to participate in TARP. The 5% financing (plus warrants) that TARP provides would have been roughly in line with Allstate's currently outstanding debt, but it seems that getting involved with a bipolar lender wasn't worth it to Allstate's management team.

Throwing off the yoke
When I'm looking for companies to invest in, I look for those with managers and board members who are savvy folks with good experience and track records. When I look at the government, efficiency and business savvy aren't even in the picture. So a company that has D.C. meddling in how it's running itself is less than appealing.

Ideally, I'd love to see some of these companies hold onto the TARP funding for a while longer, since it gives them an extra cushion and isn't overly expensive financing. However, the headaches that have come with participation hardly seem worth it.

Goldman Sachs, JPMorgan, and US Bancorp -- among a few others -- have held up pretty well during the financial market storm and don't even deserve to be mentioned in the same sentence with, say, Citigroup (NYSE: C  ) . The prospect that they'll soon be without the extra government tentacles wrapped around them makes them seem all the more appealing.

Further financial Foolishness:

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool. The Fool’s disclosure policy has never once been caught with its pants down. Of course, it doesn't actually wear pants…

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