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Will TARP's lower cost ease pressure on bonuses? Add to ...

The U.S. government's moral hammer over banks to get them to cut pay is rapidly shrinking as the Obama administration is now saying that the cost of the bank bailout program known as TARP is much smaller than anticipated just four months ago.

The Treasury is now expecting the cost of the Troubled Asset Relief Program to taxpayers will likely be about $141-billion, down $200-billion from the last estimate made in August. With banks rapidly repaying their bailout funds to get out from under direct government controls on executive pay, the program is much closer to breaking even, especially on the bank-specific portion. (There is plenty of money given to other uses, most notably the big automakers, that is much less likely to be repaid, analysts say.)

This is a good-news, bad-news story for the administration.

Taxpayers want their money back, so that's clearly the good news, and it also frees up money for other initiatives or even deficit reduction.

The bad news is it's harder for the administration to push its hard line on long-term changes in the culture of banker pay when the industry is rapidly becoming less beholden to the government.

Last week saw Treasury Secretary Tim Geithner taking direct aim at what he sees as revisionist history in banking executive suites by reminding industry bosses -- including those at Goldman Sachs Group Inc. -- that in his mind no bank was safe during the worst of the crisis and that without government aid, any institution could have failed (even you, Goldman.)

If bankers have already forgotten how bad it was, the risk for government with TARP becoming less costly to the public purse is that taxpayers will too.

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