Treasury Secretary Timothy Geithner testifying on TARP -- the Troubled Asset Relief Program
Treasury also does not have sufficient oversight authority over a joint Treasury-Federal Reserve lending program that is supposed to expand to $1 trillion, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) said in a report issued Tuesday.
The report reviews the TARP program and makes recommendations for how Treasury can improve its management of the myriad of programs funded by TARP money.
Among the findings: Treasury still has not developed a clear strategy for managing the different types of investments it has made with the nearly $600 billion it has spent so far.
Treasury was told by SIGTARP in January to develop such a plan.
“Treasury needs, in the near term, to begin developing a more complete strategy on what to do with the substantial portfolio it now manages on behalf of the American people,” the inspector general said in a Feb. 6 report.
But the latest report found that Treasury had not complied with the request, which SIGTARP said will lead to a “significant deficiency” in managing the debt securities and stock warrants it owns.
“As of the drafting of this report, however, no asset manager had been hired to manage the existing asset portfolio, and no investment strategy has been developed,” Tuesday’s report found.
The report added: “The failure to have an asset manager, an investment plan, or an accurate valuation of the securities and warrants it holds will soon be a significant deficiency in the program.”
Treasury currently holds over $500 billion comprised of a wide range of investments from preferred stock in the nation’s banks to securities from small business loans and common stock in Citigroup.
Another revelation from the SIGTARP report: The Treasury Department has almost no oversight over a joint Treasury-Federal Reserve lending program known as TALF, or the Term Asset-backed securities Lending Facility.
The program, which provides government loans in exchange for asset-backed securities that financial institutions can’t sell in the open market, has come under criticism because the Fed refuses to release the names of the institutions that participate in it.
The SIGTARP report found that Treasury is working closely with the Fed on the program, but the government has no oversight or access authority over the borrowers themselves, even though taxpayers have pumped $20 billion in TARP money into the program and the government plans to expand that total to $80 billion.
Treasury’s new funding would bring the total size of the program to $1 trillion.
“Treasury did not receive sufficient oversight-enabling provisions in the (TALF) agreements,” the report says. “(I)t has no oversight or access rights over any of the borrowers, including borrowers who default on their loans.
“Treasury does not even have the right to learn the identity of such borrowers,” the report noted. “Under its current agreement, Treasury does not have access to the identity, or any oversight authority over, the borrowers from whom, in effect, it will be buying surrendered ABS (asset-backed securities).”
The only real oversight authority Treasury has is over institutions who issue the ABS used as collateral for the loans, but only if they are found to have done so improperly, an unlikely scenario since Treasury has no ability to inspect them in the first place.
In light of the concerns, the special inspector general recommended that Treasury not expand TALF, saying that Treasury’s lack of oversight combined with the riskier securities an expanded TALF would take as collateral would make the program too risky.
“All TALF modeling and (expansion) decisions…should account for potential losses to government interests broadly, including TARP funds, and not just potential losses to the Federal Reserve.”