Government Watchdog: 'Extremely Unlikely' Taxpayers Will Recoup TARP Money
As Anniversary Nears, Lawmakers Told TARP May Not Expire at End of Year
By MATTHEW JAFFE
Sept. 24, 2009—
The controversial $700 billion bailout program has helped avert the collapse of the financial system, but the chances of taxpayers recouping the money are "extremely unlikely," a government watchdog believes.
In prepared testimony to be delivered at a Senate Banking Committee hearing today ahead of the one-year anniversary of the enactment of the Troubled Asset Relief Program, the bailout's special inspector general tells lawmakers that it is "unclear" if the government will meet its goal of "maximiz[ing] overall returns to the taxpayer."
"While several TARP recipients have repaid funds for what has widely been reported as a 17 percent profit, it is extremely unlikely that the taxpayer will see a full return on its TARP investment," Neil Barofsky says. "For example, certain TARP programs, such as the mortgage modification program which is scheduled to use $50 billion of TARP funds, will yield no direct return, and for others, including the extraordinary assistance programs to AIG and the auto companies, full recovery is far from certain."
Also testifying at the Senate hearing today was Treasury's TARP chief Herb Allison who appeared to indicate to lawmakers that the bailout program will not be allowed to expire at the end of the year. The Treasury Department can extend the program until October 2010.
Said Allison, "We still have work to do."
When asked by Sen. Jon Tester, D-Mont., if Treasury Secretary Tim Geithner would extend the program, Allison did not answer directly, noting only that that decision is one that Geithner will have to make.
Barofksy also notes that the government has not met its goal of increasing lending by the banks, although banks likely would be lending even less if the program had not been enacted. The program has also failed to meet other goals, such as enabling homeowners to keep their homes and employees to keep their jobs.
In the last year, foreclosures have continued to soar and the country's unemployment rate currently sits at a 26-year high of 9.7 percent.
"The risk of foreclosure continues to affect too many Americans; unemployment continues its rise to levels that Treasury has characterized as 'unacceptable'; the so-called 'toxic' assets that helped cause this crisis for the most part remain right where they were last fall -- on the banks' balance sheets; and it is becoming more and more clear that the commercial real estate market might be the next proverbial shoe to drop, threatening to increase the pressure on banks and small business alike yet again," Barofsky says.
Obama Has Yet to Make Economic Bailout Transparent
The watchdog also argues that the Treasury Department has not fulfilled its pledge of transparency so the American people can have as much information as possible about what is being done with their money.
The department's "basic attitude towards transparency", Barofsky says, "remains a significant frustration."
"While Treasury has taken some steps in the right direction on this front, its continued refusal to accept SIGTARP's basic transparency recommendations on such issues as how TARP recipients are using TARP funds and the disclosure of trading of toxic assets of banks in the PPIP means that TARP largely remains a program in which taxpayers are not being told what most of the TARP recipients are doing with their money and will not be told the full details of how their money is being invested," he says.
Barofsky's office, known as SIGTARP, says it has 35 ongoing criminal and civil investigations as of June 30.
The watchdog recently completed an audit to determine if the government's decision-making process was affected by any undue external influences. Of the 56 institutions that Barofsky identified as the subject of external inquiries, three institutions did not meet all of the program's criteria but still received approval based on mitigating factors.
"Among these three, one institution stood out. SIGTARP's analysis indicated that discretion afforded this applicant in its approval was greater than that afforded other applicants," the watchdog says, without naming the institution.
The Treasury Department responded to SIGTARP's criticisms by noting that the agency has already adopted numerous suggestions and will now be expanding a quarterly report on the program.
"Treasury remains committed to working closely with all of our overseers to ensure taxpayer funds are used prudently and effectively," said Department spokesman Andrew Williams. "Treasury has already implemented the vast majority of their recommendations and has worked actively to incorporate SIGTARP early in the development of processes regarding TARP programs."
"In our continuing effort to improve the transparency of the programs, and in order to more closely adopt the recommendations in the SIGTARP report, Treasury is expanding its Quarterly Capital Purchase Program (CPP) Report to include additional categories of information included in the SIGTARP survey responses underlying the SIGTARP report, such as financial institutions' repayments of their outstanding debt obligations and total investments," Williams stated. "This expansion will begin with the next Quarterly CPP Report, scheduled to be released during October 2009."
Barofsky is scheduled to testify before the Senate panel today along with Elizabeth Warren of the Congressional Oversight Panel and Gene Dodaro of the Government Accountability Office.
The panel's chairman, Sen. Chris Dodd, D-Conn., said in his opening statement that Congress acted properly in enacting the controversial bailout program.
"I think we did the right thing," said the Connecticut Democrat, "and I think history will prove that to be the case."
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