This report verifies what everyone has suspected for some time, namely that TARP is doling out funds without any real accountability for what the money is being used for. No doubt Obama will probably address this issue in his speech this afternoon. He has been handed a golden opportunity to be responsive to public concerns. Warren seems to be doing a good job as chair of the oversight panel.
http://www.bloomberg.com/apps/news?pid=20601070&sid=ayn4esm6tYY8&refer=homeOversight Panel Blasts TARP’s Lack of Accountability (Update1)
By Bob IvryJan. 9 (Bloomberg) -
- The Congressional panel set up to oversee the U.S. Treasury’s $700 billion rescue fund criticized the program for failing to require recipients to report what they are doing with taxpayers’ money.The Congressional Oversight Panel, headed by Harvard Law Professor Elizabeth Warren, said a lack of accountability in the Troubled Asset Relief Program “erodes the very confidence” it is supposed to restore. It also faulted Treasury Secretary Henry Paulson for taking “no steps” to use the fund to stem mounting mortgage foreclosures while banks receive bailout loans.“The panel still does not know what the banks are doing with taxpayer money,” the panel wrote in a monthly report published today. “So long as investors and customers are uncertain about how the taxpayer funds are being used, they question both the health and sound management of all financial institutions.”The criticisms echo those made by Congressional Democrats who are pressing incoming President Barack Obama to use more TARP money for consumers hurt by the credit crisis. As many as 2.1 million U.S. homeowners lost their homes or were in some stage of foreclosure through November, according to RealtyTrac Inc., a real estate database. The Treasury has defended its effort, saying it has helped average Americans by preventing a collapse of the financial system.Voting NoThe vote approving the report was 4-1 with Representative Jeb Hensarling, a Texas Republican, voting no, Warren said today in a conference call with reporters.The oversight committee has come under criticism for its partisan tilt. Hensarling, the top Republican on the Financial Institutions panel of the House Financial Services Committee, also refused to endorse the panel’s first report issued last month and said “the jury is still out” on whether it “will eventually be an effective vehicle” for monitoring the TARP.“I still don’t believe that the panel has all the information necessary to do its job,” Hensarling said in an interview today. “It’s hard for me to believe that we can have a comprehensive, thorough, credible report if we’re not having hearings with the upper echelon of Treasury.”The report faulted Treasury officials for failing to answer some of the 45 questions the panel submitted.It questions whether the Treasury Department is complying with Congress’s wish to develop a plan to assist distressed homeowners.Helping Homeowners“There is no mechanism in TARP to help homeowners,” said Rick Sharga, senior vice president at Irvine, California-based RealtyTrac. “When the program was first announced the hope was that by buying these distressed assets the government would be able to renegotiate lower terms with homeowners. But when the strategy changed to injecting money directly into banks it eliminated any direct help to homeowners.”The Treasury Department also needs to publicize the way it values bank assets, the report said.“Until asset valuation is more transparent and until the market is confident that the banks have written down bad loans and accurately priced their assets, efforts to restore stability and confidence in the financial system may fail,” the report said.U.S. banks have lost or written down $678.5 billion, mostly due to mortgage-related investments.Trading Bad AssetsRevealing the prices paid for distressed assets may free up traders to begin buying and selling them again, said Joseph Mason, a finance professor at Louisiana State University in Baton Rouge and a former economist for the Office of the Comptroller of the Currency.“The more transactions we get, whether it’s for failed banks or bad loans, the more we can get people to believe the pricing and reestablish market equilibrium,” Mason said.Treasury has “effectively allocated” $350 billion under the Emergency Economic Stabilization Act, of which TARP is a part, the report said. The second $350 billion hasn’t been parceled out yet.“Congress may want to consider the issues that the Congressional Oversight Panel has raised before it gives out more money,” Warren said in the conference call.House Financial Services Chairman Barney Frank, a Massachusetts Democrat, said today he would submit legislation requiring recipients of TARP funding to file quarterly reports on the use of the money.The oversight panel was set up under the rescue law passed in October. It has three members appointed by Democrats and two by Republicans. Today’s is its second critique of the bailout; the group’s reports are required by the legislation.Bloomberg News filed suit Nov. 7 against the Federal Reserve under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created as rescue attempts for the financial industry during the deepest financial crisis since the Great Depression.