$700-Billion Bailout Lacks Transparency, Accountability, Congressional Panel Says
January 13, 2009 - 7:00 PMCongress, in passing the $700-billion Troubled Asset Relief Program, expected some of the money handed to financial institutions to ease the credit crunch and help reduce the number of home foreclosures.
But a report released Friday faulted the first, $350-billion phase of the bailout for lacking transparency and accountability and for doing little to alleviate the rising number of foreclosures.
“The panel still does not know what the banks are doing with taxpayer money,” said the five-member Congressional Oversight Panel in the report released Friday. “So long as investors and customers are uncertain about how taxpayer funds are being used, they question both the health and sound management of all financial institutions.”
The Congressional Oversight Panel Report questioned whether the Treasury Department’s purchase of “toxic” assets is working.
“While the statute contemplates that foreclosure mitigation would be accomplished through the purchase of mortgage related assets, many believe that Treasury has clear authority to use a portion of the $700 billion to address mortgage foreclosure in other ways,” the report said.
“For Treasury to take no steps to use any of this money to alleviate the foreclosure crisis raises questions about whether Treasury has complied with Congress’s intent that Treasury develop a ‘plan that seeks to maximize assistance to homeowners,’” it added.
The Congressional Oversight Panel was established by Congress to oversee the Treasury’s TARP program and to assess the bailout’s impact on the economy. The bi-partisan panel is chaired by Elizabeth Warren, a professor at Harvard Law School.
“The Treasury has been using the TARP funds in the best way possible to stabilize the financial situation,” White House spokesman Scott Stanzel said.
“The program is working. Obviously we would like to see results faster. Banks are beginning to strengthen their balance sheets and they are beginning lending again, even in a very difficult economy. Once confidence returns, however, is when more lending can go forward,” he added.
Stanzel said that financial stability will take time to achieve. Further, he said the Treasury Department has cooperated fully with the Congressional Oversight Panel, the Government Accountability Office and the program’s Inspector General Neil Braofsky.
“The Treasury Department has acted swiftly to try to get this money out the door to try to stabilize the financial system and at the same time deal with the reporting requirements and the oversight requirements,” Stanzel said.
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, introduced a bill Friday to amend TARP to require Treasury to spend more money on foreclosure relief.
“What we are seeing is an increasing downward plunge of employment, and it is now beyond rational debate that we need a significant infusion of public funds to work with the private sector so that we can restore economic growth,” Frank said in a written statement.
“I believe this will require both a large fiscal recovery plan and the release of the second $350 billion of the TARP, provided that we can agree on appropriate measures to govern the allocation of those funds,” he added.
Regarding accountability, the congressional report says, “The recent refusal of certain private financial institutions to provide any accounting of how they are using taxpayer money undermines public confidence. For Treasury to advance funds to these institutions without requiring more transparency further erodes the very confidence Treasury seeks to restore.”
Further, the report cited two separate cash infusions of more than $20 billion into Citigroup as evidence that Treasury did not correctly assess the bank’s needs the first time. “These events suggest that the marketplace assessed the assets of some banks well below Treasury’s assessment.”
According to the report, “The bubble that caused the economic crisis has its foundations in toxic mortgage assets. Until asset valuation is more transparent and until the market is confident that the banks have written down bad loans and accurately priced their assets, efforts to restore stability and confidence in the financial system may fail.”
The report goes on to say that Treasury should re-evaluate its strategy.
“It is not enough to say that the goal is the stabilization of the financial markets and the broader economy,” the report says. “The question is how the infusion of billions of dollars to an insurance conglomerate or a credit card company advances both the goal of the financial stability and the well-being of taxpayers, including homeowners threatened by foreclosure, people losing their jobs, and families unable to pay their credit cards.”
Stanzel stressed that, “Congress gave very broad authority to the Treasury Department to deal with a challenge, the likes of which we have never seen.”
He added that the Treasury Department and the Bush administration have “worked to communicate their actions.”
“But this is a unique situation, a unique problem, and one that is without precedent.”
President-elect Barack Obama, meanwhile, is pressing Congress to release the remaining $350 billion in TARP funds.
President Bush, acting at Obama’s request, said Monday he would ask Congress to release the money so it is available to Obama soon after he takes office.
Republicans, disappointed with the management of the first multi-billion batch of TARP funds, said they want more “transparency” this time around:
“Until officials can present a clear plan to Congress – and, most importantly, to taxpayers – demonstrating how the expenditure of additional TARP funds will benefit our economy and making clear an exit strategy for getting the government back out of the private sector, it would be irresponsible for Congress to release the remainder of these resources,” House Republican Leader John Boehner (Ohio) said Monday in a statement.
“I will oppose the release of these taxpayer funds when the matter is considered on the House floor,” Boehner added.