BOSTON - The George W. Bush administration has hired a Wall Street firm to lead its 700-billion-dollar bailout plan, but how much the U.S. is paying the firm is being kept secret.
The U.S. announced late Tuesday that it had hired global giant Bank of New York Mellon as the lead agency to help manage the spending, lending and accounting of the 700 billion dollars approved by Congress Oct. 3 for re-starting the ailing U.S. banking system.
Treasury posted its legal agreement with New York Mellon on the Treasury website but the amount of the contract was blacked out.
A Treasury spokesperson told reporters that the amount of the contract will be made public in a matter of months, after further contract arrangements with other firms have been finalised. Calls to the Treasury for a further explanation were not returned.
"I find it unbelievable we're turning over 700 billion dollars in taxpayer money to someone else to manage but it is not being told to us how much they will be paid," Craig Holman, a lobbyist for Public Citizen, a public interest group founded by Ralph Nader, told IPS. "It is inexcusable."
Earlier in the day, the Bush administration chose New York Mellon to be one of the primary beneficiaries of the 700 billion dollars. It is one of nine Wall Street firms that will receive 125 billion dollars in emergency funds, in exchange for selling non-voting shares to the U.S. government. Mellon's portion will be 3 billion dollars, the company said.
The firm's stock price rose 13 percent by the end of Tuesday.
"We are supportive of the Treasury's efforts. It is time to get the markets working again for borrowers and Investors," said Robert P. Kelly, New York Mellon chairman and chief executive officer, in a statement.
The other firms include: Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, Merrill Lynch, Morgan Stanley, State Street Bank and Wells Fargo. Other, smaller banks may apply to the government for assistance until Nov. 14.
An additional, undetermined amount of the 700 billion dollars will also likely be spent at the Wall Street firms, to purchase their bad mortgage assets, some of which are believed to be almost worthless. The firms bought and sold the risky mortgage assets and for years, made fast profits in a climate free of regulation. More recently, millions of homeowners have been unable to meet the high interest rates and in some cases, questionable demands in their mortgages, and are going into foreclosure.
Now the banks are wary of each other's credit-worthiness, and loans among them and large businesses have slowed to a trickle. The Bush administration says the U.S. needs to inject the billions into the Wall Street firms and other banks in order to fend off a global recession.
"Our market leadership and experience have given us a keen understanding of the challenges facing the U.S. Treasury in these extraordinary times," Kelly said in another statement, about it winning the government contract.
"We will immediately deploy our resources and expertise, joining the team of public and private organisations that are working hard to earn the trust of the American taxpayers and to address the ongoing economic challenges," Kelly said.
Hiring one of the firms that is a target of the programme to oversee the programme raises conflict of interest questions, Holman said.
"There are inevitably going to be conflicts no matter who is brought in, and that is why oversight and public transparency is critical," said Craig Holman, lobbyist for Public Citizen, a Washington watchdog organisation founded by Ralph Nader.
"This isn't transparency. It is turning into another insider, Wall Street wheeling and dealing programme," Holman said.
The two boards mandated by the U.S. Congress to oversee the 700 billion programme are not adequate, Holman said.
"One will be set up by the Treasury secretary and the Fed chairman, the same people who got us into this problem in the first place. The other is appointees from Congress," Holman said. "We need a third oversight board, one that requires that all records should be public."
House Speaker Nancy Pelosi did not respond to a query about whether Congress will take action to require full disclosure by the Treasury Department of feed paid to contractors.
Congress is officially on break until Jan. 3, 2009, though the House Oversight and Government Reform Committee is holding occasional hearings on the financial crisis. Its next hearing is scheduled for November.
In a statement Tuesday, Senator Chris Dodd, chair of the Senate Banking Committee, vowed "to play an active role in overseeing the administration's implementation of its plans."
New York Mellon watches over 36 trillion dollars in assets and debts for institutions and very wealthy individuals worldwide. It will perform similar functions for the U.S. government, according to the Treasury.
The firm will handle accounting and also help "administer the complex portfolio of troubled assets the Department will purchase." It is unclear if the firm will recuse itself from purchasing or handling its own troubled assets for the U.S. government.
"Given that we've seen a lot of problems with contractors for the Iraq war, it's incumbent on the government to do as much disclosure as possible and given how many taxpayer dollars at stake," Mary Boyle, spokesperson for Common Cause, a watchdog group, told IPS.
"There have been many instances in last decade in which there have been questions about how the feds are using contractors and what kind of accountability the contractors have. Transparency is the first step you can take to addressing these questions," Boyle said.
This year, Bank of New York Mellon had at least two lapses in data security, involving lost or stolen data of its clients. In one incident, the social security numbers of 4 million people were potentially exposed when backup data went missing, and in another, payment documents of 50 institutional clients also disappeared.