Washington (AP) - A government watchdog said the $700 billion bailout for the financial industry played a major role in rescuing the economy over the last year but also engendered anger and distrust among Americans because of secrecy and confusion about the way the program was handled.
The mixed and blunt assessment by Neil Barofsky, the special inspector general in charge of oversight for the bailout fund, appears in a quarterly report scheduled for release Wednesday. Barofsky said the Troubled Asset Relief Program has come at great cost to taxpayers, to the integrity of the financial system and to the public's perception of the federal government.
"Despite the aspects of TARP that could reasonably be viewed as a substantial success," he wrote, "Treasury's actions in this regard have contributed to damage the credibility of the program and of the government itself, and the anger, cynicism and distrust created must be chalked up as one of the substantial, albeit unnecessary, costs of TARP."
Barofsky said public suspicion was fed by Treasury's decision not to require banks to report how they used their rescue money and its "less-than-accurate" statements describing the financial condition of nine large banks that benefited from large infusions of aid. The TARP program began under the administration of President George W. Bush and has expanded under President Barack Obama.
The program has come under criticism in Congress from across the political spectrum. Liberals maintain the program needs to shift its focus from big financial firms to small businesses and homeowners. Conservatives insist the program has been an unnecessary intrusion into the financial sector and should end swiftly.
On Wednesday, Obama is expected to announce a new TARP program to assist community banks. The American Bankers' Association has asked for $5 billion in rescue-fund money to help small banks extend more loans.
In his report, Barofsky credited the Federal Reserve and the Treasury Department for adopting some of his accountability recommendations over the past several months. But he said several of his agency's proposals for greater transparency have gone unheeded.
The report describes a patchwork of initiatives carried out under the TARP umbrella -- some designed to assist the biggest of Wall Street institutions, others to bail out the struggling auto industry and yet others to help homeowners struggling to stave off foreclosure.
Even within those programs, Barofsky found inconsistent attempts to hold recipients of the bailout accountable to taxpayers.
For instance, General Motors, which received $50 billion in government assistance, has an internal guideline that generally prohibits employees from flying in private jets for business travel. Bank of America, which received $25 billion, has the opposite policy, encouraging senior management to use corporate aircraft "for safety and efficiency purposes," the report states.
Bank of America, which reported losses of more than $2.2 billion in the third quarter, had nebulous guidelines for luxury expenses. "Reasonable expenditures occur when the costs of entertainment or events do not exceed the expected benefit to the corporation," according to the company's four-page policy.
Chrysler's policy, on the other hand, runs for 15 pages and lists specific prohibited expenses, including spa services, country club dues, tuxedos and shoe shines.
Overall, Barofsky said the cost of preventing a financial collapse fell into three categories:
--Taxpayers: The government has spent more than $454 billion through TARP programs. Forty-seven TARP recipients have paid back nearly $73 billion. That means more than $317 billion remains available. The program is set to end Dec. 31, but the administration could seek an extension until next October. Despite the repayments several of the program are not expected to yield returns to the taxpayer, including a $50 billion mortgage modification plan and some of the money injected into auto companies.
--The integrity of the industry: Many firms considered "too big to fail" last year, and thus in need of government assistance, are even bigger now. "Absent meaningful regulatory reform, TARP runs the risk of merely reanimating markets that had collapsed under the weight of reckless behavior," the report sates.
--The credibility of the government: Barofsky wrote that public antipathy for the bailout is fueled by "the lack of transparency in the program." Over the course of the year, Barofsky has called on the Treasury Department to seek more information from banks on how they use their taxpayer assistance.
A government watchdog says the Troubled Asset Relief Program has come at great cost to taxpayers, to the integrity of the financial system and to the public's perception of the federal government.