Tuesday, April 14, 2009

TARP Oversight Scandal Continues

Summarizing articles on TARP oversight, RGE reports:

  • April 13: Neil Barofsky, the special investigator general for the TARP, is looking whether banks cooked their books by overvaluing assets to qualify for TARP funding. Barofsky: "One of our strongest recommendations of the last report was: do not expand the Talf to buying legacy assets. If its structure is not changed considerably, it's very, very dangerous" (Financial Times, Naked Capitalism)
  • Elizabeth Warren in TARP Oversight Panel Report on April 8: "Six months into the existence of TARP, evidence of success or failure is mixed. One key assumption that underlies Treasury’s [PPIP] approach is its belief that the system-wide deleveraging resulting from the decline in asset values, leading to an accompanying drop in net wealth across the country, is in large part the product of temporary liquidity constraints resulting from non-functioning markets for troubled assets. On the other hand, it is possible that Treasury’s approach fails to acknowledge the depth of the current downturn and the degree to which the low valuation of troubled assets accurately reflects their worth"
This strengthens one's unease at the way TARP is being managed at first reading, but the good news is that regulators are making such statements and, evidently, following up by...regulating.
The question seems to be: Who will win the TARP battle - corrupt financiers and their politician buddies or the regulators courageously calling for tighter oversight?

Sunlight Projects researchers hint at the answer:

Less than half a dozen people are responsible for making the final decisions about which banks get part of the $700 billion in bailout money available through the Troubled Asset Relief Program, according to Department of  Treasury officials. In response to a Freedom of Information Act request made by the Sunlight Foundation in January for the members of the TARP Investment Committee, a FOIA officer recently responded with just four names, including Assistant Secretary, Neel Kashkari; Chief Investment Officer, James Lambright; Acting Assistant Secretary for Financial Markets, Karthik Ramanathan and Acting Assistant Secretary for Economic Policy, Ralph Monaco, all holdovers from the Bush administration.

As of March 27, 2009, Treasury had disbursed $303.4 billion of the $700 billion in TARP funds, and yet taxpayers don’t know who is making those decisions. The most recent Government Accountability Office report critiques Treasury’s process as not being sufficiently transparent. In response to the report and news stories Treasury issued a statement saying, “Transparency and accountability are central to ensuring that taxpayer funds are spent wisely.”

The GAO report on TARP presented in testimony before the Senate Committee on Finance very delicately suggested that Treasury might "further improve the integrity and accountability" associated with the $70 billion bailout to AIG, called for "further actions" related to vendor conflict of interest issues and new rules for documenting such conflicts, noted "the difficulty of measuring the effect of TARP's activities, and pointed out that Treasury "has yet to hire asset managers to manage its growing portfolio of assets"! Buying assets first and thinking about managing them second??? There's more. The bottom line is that GAO is not giving Americans a real good feeling about the professionalism with which TARP is being run. I recently scored government efforts on the financial portion of recession management a "D." This information hardly motivates me to raise that score.

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