Friday 10 April 2009
by: Christina Rexrode | Visit article original @ The Charlotte Observer
(Artwork: Victor Juhasz)
Six months after its creation, the Troubled Asset Relief Program still hasn't worked out its kinks.
TARP has struggled to clarify its purpose and organize its logistics, according to the three government groups in charge of overseeing the program. They say the Treasury Department, which administers TARP, is tight-lipped on some important matters, such as how officials decide which banks qualify for it. They complain that TARP doesn't have the staffing to make sure banks are complying with the rules attached to the money. There's even disagreement about how much money is actually left.
And that's not including the numerous ideological objections, which the government groups don't address.
The Treasury says it "has taken important steps" to resolve the complaints lodged recently by the Government Accountability Office, or GAO; the Congressional Oversight Panel; and the Special Inspector General of TARP. The latter two were created specifically to oversee TARP.
TARP's roots officially date to Friday, Oct. 3, when jittery lawmakers authorized what they called a banking bailout, worth $700 billion and loosely defined. In Charlotte, the news was overshadowed by Wells Fargo & Co.'s unexpected announcement that it would buy Wachovia Corp.
TARP marked a new era in the government's control over the private sector, and it's expanded beyond banks to include programs for automakers, hedge funds and other groups. This week, reports emerged that the government may extend the program to life insurance companies.
TARP and associated programs, including those partially funded by the Federal Reserve and the Federal Deposit Insurance Corp., could total nearly $3 trillion, according to TARP's inspector general. That's about the size of last year's entire federal budget and doesn't include $750 billion that the Obama administration may seek later this year.
"Mind-boggling" and "surreal" is how Sen. Max Baucus, the Democratic chairman of the Senate Finance Committee, describes those numbers. "We owe it to the American people to clearly explain what's going on here," he said last week.
Here's a summary of the oversight groups' main complaints:
Money
Banks are supposed to pay interest to the Treasury on their TARP loans every quarter, and the Treasury has stressed that, because of the interest payments, it expects to make money on TARP in the long run.
"This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything," then-Secretary Hank Paulson said in October.
As of March 20, Treasury had received $2.9 billion in interest payments from TARP banks, according to the GAO. But Treasury hasn't reported this to the public, the GAO says. It also hasn't reported that it has not received another $733 million that it is owed. Almost all of that is owed by failed insurer AIG, though there are also eight banks that owe a combined $150,000.
A February report by the Congressional Oversight Panel says the Treasury could be overpaying for the bank assets. The report, which examined the 10 largest TARP transactions of 2008, found that for each $100 the Treasury invested, it received on average stock and warrants with a current market value of just $66.
Though the value of those assets could increase substantially in the future, the panel criticized the Treasury's "one-size-fits-all investment policy."
"The use of standardized documents likely contributed to Treasury's ability to obtain speed of execution and wide participation," the panel wrote, "but it meant Treasury could not address differences in credit quality among various capital infusion recipientsÖ "
There's also disagreement about how much of the original $700 billion TARP has been spent. The Treasury says it has about $135 billion in "uncommitted resources" remaining. But the GAO counters that there's only about $32 billion that hasn't been lent out or promised.
That's because the GAO, unlike the Treasury, assumes banks will use the maximum amount allotted for each program within TARP. The Treasury also includes a "very conservative" estimate of banks' interest payments in its calculation.
Transparency
How banks spend their TARP money has been an issue of huge controversy, and when TARP was launched, the Treasury did not formally require banks to report how they were using the money.
But the Treasury has become stricter on this front. In January, it announced it would require the 20 largest TARP recipients to file monthly reports on how they were using the money to increase lending. In March, the Treasury announced it would extend that requirement to TARP recipients of all sizes.
However, even the reports have problems. The GAO says that it's still difficult to determine if TARP money is the direct cause of any new lending. For example, low mortgage rates - not necessarily TARP money - have spurred refinancings. The reports also don't require banks to give comparable data on how much they were lending before they received TARP, though the Treasury says it is finalizing a system to compare each bank's lending activity "against a pre-established lending level that would have occurred" without TARP.
The government groups also say that the Treasury has failed to share information on how it decides which banks get TARP money - an issue that became problematic when U.S. Rep. Barney Frank, Democratic chairman of the House Financial Services Committee, admitted that he had lobbied for TARP money for a bank in his home state of Massachusetts.
TARP's inspector general, Neil Barofsky, said last week that he has opened an audit "to guard against any inappropriate external influences over the TARP application process."
Staffing
The GAO worries the Treasury doesn't have the staffing for vital functions, such as managing its growing portfolio of assets and making sure TARP recipients are complying with TARP rules. For example, the Treasury limits shareholder payouts and share repurchasing of TARP recipients. But it doesn't have a formal system to ensure compliance; rather, it relies on the banks to submit accurate information.
Also, the GAO says the Treasury has failed to keep the public and legislators informed about its goals and progress. It recommends the Treasury hire a communications officer dedicated to TARP and schedule regular town hall meetings across the country, among other measures.
The Treasury says it is hiring staffers and creating committees for risk management and related areas. It points out that its officials have made public comments and testified to Congress about TARP and related programs, and it's created a new informational Web site, FinancialStability.gov.
Treasury Secretary Tim Geithner asked for patience from the public early in his tenure, warning that he would make mistakes. "We will have to adapt our programs as conditions change," he said in February, two weeks after his swearing-in ceremony. " We will go through periods in which things get worse and progress is uneven or interrupted."
But, he added, the Treasury and the president are committed to seeing the country through the financial crisis, "because we know how directly the future of our economy depends on it."
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