Where Have the Bailout Billions Gone?
BOSTON - A new U.S. investigative panel is demanding answers from the U.S. Treasury about how the agency has spent money from the 700-billion-dollar bailout fund.
The Congressional Oversight Panel, a four-person board authorized by Congress and led by consumer advocate Elizabeth Warren of Harvard Law School, is charged with finding out what Treasury has done with the billions it has already spent.
"We are here to ask the questions that we believe all Americans have a right to ask: who got the money, what have they done with it, how has it helped the country and how has it helped ordinary people?" the panel says in its first report, which lays out its work.
The panel has begun gathering documents from Treasury and also is holding a series of public meetings across the U.S., to hear the public's concerns about the bailout and the economy. The panel expects to have some answers for Congress and the public by Jan. 9, when it will issue a report on its website, cop.senate.gov.
"We will be running very hard over the next 40 days," Warren told members of Congress recently. Also on the panel are Rep. Jeb Hensarling, a Republican from Texas; Richard Neiman, Superintendent of Banks in New York; and Damon Silvers, a lawyer with AFL-CIO.
"The recession has visited every household in the country. More than 100,000 families last month headed into bankruptcy courts. Americans are watching Washington's every move with great concern," Warren said.
In a desperate attempt to ease lending, the Federal Reserve Tuesday dropped the federal funds interest rate to between 0 and .25 percent, the lowest in decades.
The Warren panel lacks subpoena power but will work together with Special Inspector General Neil M. Barofsky, who will wield significant legal power, and the General Accounting Office, in auditing and overseeing the funds.
"The public has a right to know how financial institutions that have received public money are using that money," the panel says. "Treasury should be responsible for holding individual institutions accountable for how they use the public's money."
After considerable protests from the public, legislators approved on Oct. 3 700 billion dollars in special funding for the U.S. Treasury, which was requested by Treasury Secretary Henry Paulson who said the funds were needed to prevent a wholesale collapse of the U.S. financial sector.
Paulson has since doled out the equivalent of 1,900 dollars per U.S. family to banks and financial institutions, according to Warren's panel. None of the Treasury funds have been aimed at slowing foreclosures.
Paulson gave 40 billion dollars to insurance giant AIG, 165 billion dollars to 87 banks, including Citigroup and eight other of the largest financial institutions in the U.S., plus an additional 20 billion dollars to Citigroup. The nine large banks were required to give the U.S. a limited amount of stock and returns in exchange for the money.
The Treasury bailout program, run by Assistant Secretary Neel Kashkari, did not require the banks to use the money in any particular way. Kashkari told Congress recently that Treasury has not audited the money to see how it is being spent.
"There is a casual impression that this money is being used to pay bonuses for top executives and dividends for shareholders," James Crotty, professor emeritus in economics at the University of Massachusetts, told IPS.
"There are ways to measure what's happening to the lending. This may be something to question Treasury vigorously about," Warren said. Great Britain has kept track of its bank bailout money, and required concessions, unlike the U.S., she said.
"The money was given to financial institutions in return for those institutions to lend to small and medium enterprises. There was an explicit quid pro quo," she said.
Paulson and Kashkari, both formerly of Goldman Sachs, have spent additional millions to hire private firms and some of the same institutions that received bailout money, to help administer the bailout program.
Much secrecy surrounds the spending of the money, with the amount of money in some contracts blackened out and the work actually underway by the contractors not described or audited.
"We are disturbed that so much of [the bailout] activities are opaque. There is a lack of adequate oversight and a lack of transparency," Beverley Lumpkin, an investigator with the Program on Government Oversight, a Washington non-profit, told IPS. POGO praises the panel's work so far.
"We like the questions they ask. We feel they are pretty much tracking the major questions that need to be looked at," Lumpkin said.
Despite the spending of these funds and more than two trillion by the U.S. Federal Reserve, the economy remains in turmoil, marked by job losses and climbing unemployment, business closings, more than 2 million home foreclosures in 2008 and a severe drop in the value of the stock market.
"The funds haven't done what they are supposed to do. They hoped interest rates would come down and that loans would take place. It doesn't appear that either of those things have happened," Crotty said.
The nation's largest banks are not loaning money to each other out of fear that they will lose it if a bank defaults, due to their heavy investment in risky, unregulated products based on mortgages with sky-high interest rates and unfair terms, many of which are now in foreclosure and without value. This in turn has crimped loans to businesses and brought the economy almost to a halt.
"Virtually all the things that indicate the health of the economy are deteriorating rapidly. Everything looks horrible at the moment," Crotty said.