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Critical Issues Not Addressed in Bailout: GAO

Tuesday 02 December 2008

by: Richard Cowan and Rachelle Younglai  |  Reuters

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GAO criticizes Treasury's use of bailout funds. (Photo: Jin Lee)

    Washington - The investigative arm of the US Congress on Tuesday criticized the Treasury Department's handling of a $700 billion bank bailout program and urged the Bush administration to get it into better shape.

    Treasury has yet to address a number of critical issues, including how it will ensure that the program "is achieving its intended goals," said Congress' Government Accountability Office (GAO) in a study first reported by Reuters.

    Under the government's Troubled Asset Relief Program (TARP), $250 billion has been committed for direct injections into U.S. banks in a bid to revive sluggish credit markets and restore confidence in the banking system.

    Some lawmakers have accused banks of hoarding the money instead of lending it out, and have urged Treasury to make it clear that government funds must be used for loans and not to buy healthy banks or pay higher dividends.

    The GAO said Treasury has not yet determined if it will impose reporting requirements on participating banks so that the government can monitor how federal funds are being used.

    "The standard agreement between Treasury and the participating institutions does not require that these institutions track or report how they plan to use, or do use, their capital investments," the GAO said.

    The Congressional watchdog recommended Treasury develop ways to ensure participating banks comply with key TARP conditions, such as limits on executive compensation.

    It also urged Treasury to report in a timely manner on whether financial institutions are fulfilling the bailout's goals, and to ensure accountability and transparency.

    Treasury agreed with the bulk of the GAO's recommendations, but said it had a "different perspective" with what is needed to evaluate how participating banks are spending their government funds.

    Many banks, including Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz), have already received government funds and have assured Congress that they intend to lend the money out to credit-worthy borrowers. ID:nN17526849

    The GAO also said oversight and enforcement of the program's executive pay provisions are still unclear. The TARP limits executive pay for participating banks, including restrictions on golden parachutes for departing executives.

    The GAO said credit market improvement could not be solely attributed to the government's capital injection program because so many different actions are being taken.

    "No single indicator will provide a definite determination of the program's impact," the document said. The GAO said its preliminary indicators of success for the program will include trends in interest rate spreads, mortgage rates, mortgage originations and foreclosures.

    In related news, Montana Democratic Sen. Max Baucus, chairman of the Finance Committee, in a statement urged the Senate to confirm the Bush administration's nominee for inspector general of the TARP so he can get to work.

    Baucus said the GAO report underlined how important it is for nominee Neil Barofsky to start his job and set up his staff of internal TARP watchdogs. His nomination is being blocked by a single, unnamed Republican senator.

    "This report proves the immediate need for oversight of the taxpayer dollars being expended right now as part of TARP. Because of one Senator's anonymous block on this nomination, three weeks have been lost, a key element of the TARP oversight program is not in place," Baucus said.

    "It makes no sense to block the appointment of the special inspector general. The Senate must act quickly to confirm the special IG next week."

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    Additional reporting by Kevin Drawbaugh; editing by Phil Berlowitz.

  

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Comments

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The New York Times editorial

 Thu, 12/04/2008 - 03:08 — Anonymous (not verified)
The New York Times editorial blog concludes that 'aimless drifting' is the BEST we can hope for from Paulson and the rest of the the outgoing Cheney-Bush regime. Paulson is both symptomatic and emblematic of a radical regime whose intention has always been to thwart and to destroy governance. This it did by invading the government and disrupting all of its legitimate functions. Unfortunately 'aimless drifting' has never been on the agenda of the Cheney-Bush regime, sinking the Republic has always been its chief goal.

If it will impose reporting

 Thu, 12/04/2008 - 13:43 — radline9 (not verified)
If it will impose reporting requirements? I want a report right now! Our government is totally failing the people of the US. They have given the money away to the rich, the banks, the war profiteers, and we have no way of knowing if any of this is working. All we know is that the wealthy have control of all the money they stole from us and we made for them.

CRITICAL ISSUES NOT

 Thu, 12/04/2008 - 14:32 — Anonymous (not verified)
CRITICAL ISSUES NOT ADDRESSED, OH MY. The Bush Administration has been able to cow the Congress into doing WHATEVER it has wanted these past two years, this latest bailout action is more of the same transfer of wealth that has taken place for the past 8 years. So we're supposed to squeeze out some more outrage now? They have not been held accountable for anything up to now, why would it matter with less than two months on the clock? No, it once again points up the damned flaccid way the Congress is representing Americans under the thumb of BushCo. I agree that BushCo's actions seem to be aimed at destroying our government, yet no one seems willing or able to stop them. We can only hope Obama does not become another rascal once he gets a taste of the "throne" that Bush-Cheney-Pelosi-Reid have created. We'll find out soon enough, Obamaniacs. There's never been reason to trust Obama implicitly, the job is too big and comes with too much power, and so far all we've heard is talk.

What is this BS that one

 Thu, 12/04/2008 - 19:13 — Kathy Jones (not verified)
What is this BS that one senator out of 100 can anonymously block a nominee? And how come that only seems to work for Republicans? Whatever happened to transparent democracy? How long has this anonymous blocking rule been in effect? The senate seems to be full of rules that only the Republicans can take advantage of.

For those among you who

 Sat, 12/13/2008 - 05:57 — Lisa O (not verified)
For those among you who thought that U.S. Secretary Henry Paulson planned to use the second half of the recent $700 billion financial rescue program to buy up all of those devalued mortgages that flutter in the wind like so much confetti, think again. Instead, that mortgage juice is going to be spent on consumer credit. Since a payday cash loan is a form of consumer credit, particularly for those without a credit score or who have credit difficulties, that industry should receive aid as well. Paulson says that he wants Americans to have easier access to such traditional forms of consumer credit as car loans, student loans and credit cards, and that these forms of consumer credit have become more costly because of “illiquidity” in the consumer credit sector. “This is creating a heavy burden on the American people and reducing the number of jobs in our economy,” he says. Indeed it is, but do you see what Paulson is doing here? He’s admitting that he made a mistake with his previous version of the rescue plan! Imagine if America had had a President who was willing to do the same. Perhaps America could pick up the pieces and move forward – or maybe certain problems could have been avoided. Government officials may just have the right idea: they’re planning to use some of the bailout money to encourage private investors to come back to the market. With a strengthened economy backed by investors in the world market, a more stable job market will result, and with a more stable job market, fewer people will have to depend upon payday cash when the chips are down. Sure, the industry will be there when folks need help, but the product is not designed for long-term financial dependency. Click here to read more on Payday Loans.