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Where Did That Bank Bailout Go? Watchdogs Aren't Sure

Chris Adams

TARP chairwoman Elizabeth Warren stands in the Congressional Oversight panel's offices on Capitol Hill. (Cliff Owen/MCT)

WASHINGTON — Although hundreds of well-trained eyes are watching
over the $700 billion that Congress last year decided to spend bailing
out the nation's financial sector, it's still difficult to answer some
of the most basic questions about where the money went.

Despite a new oversight panel, a new special inspector general, the
existing Government Accountability Office and eight other inspectors
general, those charged with minding the store say they don't have all
the weapons they need. Ten months into the Troubled Asset Relief
Program, some members of Congress say that some oversight of bailout
dollars has been so lacking that it's essentially worthless.

has become a program in which taxpayers are not being told what most of
the TARP recipients are doing with their money, have still not been
told how much their substantial investments are worth, and will not be
told the full details of how their money is being invested," a special
inspector general over the program reported last month. The "very
credibility" of the program is at stake, it said.

and openness have improved in recent months, watchdogs say, but the
program still has a way to go before it's truly transparent.

its part, the Treasury Department said it's fully committed to
transparency, and that it's taken unprecedented steps to report the
status of TARP to the public. It regularly posts information on which
banks have received money, as well as details about each of those
transactions. Further, Treasury said, it doesn't agree with all of its
watchdogs' recommendations, which it said could hamper the program's

TARP was passed in the midst of last fall's
financial meltdown as a way to keep American banks from falling deeper
into the abyss.

The program was controversial from the start. Its
supporters say it's helped spark bank lending in the country, but
critics say it's unfairly rewarded the big banks and Wall Street firms
that pushed the economy to the brink.

The program also has
undergone a major transformation. When the Bush administration first
went to Congress for the money, TARP's main purpose was to buy up
hundreds of billions of dollars in bad mortgages and so-called
mortgage-backed securities that were bought and sold on Wall Street.

TARP consists of 12 programs that sent those hundreds of billions of
dollars to big banks, but it's also bailed out auto companies, auto
suppliers, individuals delinquent on their mortgages, small businesses
and American International Group, the big insurance company.

The watchdogs now must oversee the maze that TARP has become.

Just because a lot of people are watching, however, doesn't mean they get everything they want to see.

of the most prominent watchdogs is Elizabeth Warren, a Harvard Law
School professor who chairs a TARP oversight panel created by Congress.

panel has released 10 major reports that examine TARP's plans and
policies, finding that much of the work by the Treasury and the Federal
Reserve has been opaque, with unclear or contradictory goals.

report took Treasury to task for vastly undervaluing more than $250
billion in transactions with the country's major banks, and another
suggested several ways to revamp federal regulation over the financial
sector. Other reports have criticized the Treasury for its initial
defensiveness in opening its books.

Despite its mandate, however,
the panel doesn't have subpoena power. That means it can ask, but can't
compel, officials from Treasury, the Federal Reserve or the nation's
banks to testify.

Henry Paulson, the Treasury secretary under
former President George W. Bush, repeatedly stiff-armed the panel.
Timothy Geithner, the current secretary, has been more open, but so far
has testified just once before Warren's group. Geithner is scheduled to
appear again in September, and has agreed to do so quarterly, and two
other senior Treasury officials also have appeared.

The relative
lack of testimony from top officials, however, is one reason why
critics of Warren's panel think it hasn't delivered on its promise.

June, in an otherwise mundane congressional hearing, Republican Rep.
Kevin Brady of Texas surprised Warren with an aggressive critique of
the panel, saying it's failed to help taxpayers understand what
Treasury is doing with the billions at its disposal.

been very little value that the panel has brought to this issue or even
insight on how these bailout dollars have been used," he said. "I
frankly believe at this point, given the reports that we've seen again
with little value, I think the panel needs to be abolished."

Warren defended the panel's work, saying the lack of subpoena power means we "only have the capacity to invite" witnesses.

"So you asked Secretary Paulson in the first month of existence?" Brady asked.

"I believe we asked him repeatedly," Warren said. "We asked him in our first month, in our second month, in our third month."

said she took the criticism seriously, dropping by Brady's
congressional office as soon as the hearing adjourned. The two had
never met before, she said, and "I was really surprised," by his

"He said he felt frustrated," she said. "He wanted us to be even blunter" in the panel's reports.

amplified his comments in an interview last month, saying that some of
the panel's work seems like a "PR ploy" and that "the moment has
passed" for Warren's group to play the role Congress envisioned.

feelings have been partially echoed by two other members of the panel,
Rep. Jeb Hensarling of Texas and former Sen. John E. Sununu of New
Hampshire, both Republicans appointed by congressional GOP leaders (the
other three members were appointed by Democrats).

Both have
accused the panel of mission creep — of straying from the central goal
of determining exactly how, and how well, Treasury is doing its job.

said that "taxpayers have not received answers as to whether the TARP
program works, how decisions are being made or what the banks are doing
with the taxpayers' money." While he praises the "very smart people on
the panel," he said too many questions have been left unexplored.

acknowledges that the lack of subpoena power makes things tough. "But
even if we had it, I'm not sure we would have used it," said
Hensarling, who's pushing to abolish TARP.

The other primary
watchdog is Neil Barofsky, a special inspector general named in
November by Bush specifically to track TARP funds. His office does have
subpoena power, and a growing staff that's expected ultimately to have
160 people pursuing audits and criminal investigations.

It's also
made a series of recommendations to the Treasury, asking that it do
more to reveal how TARP money is being spent. Treasury has adopted some
of its recommendations, but rejected others — including one of the most
important: Giving taxpayers precise details on how TARP funds have been
used by banks.

The recommendation involves one of the most
visible aspects of TARP: investing $218 billion in 650 banks, helping
them to strengthen their balance sheets and boost lending to American
businesses and homeowners.

Barofsky's office has long advocated
that the Treasury require banks to detail how the TARP money they've
received has been used. The department has refused, saying that once an
investment is made in a big bank, it's not possible to track how it's

Barofsky's office rejected that assertion, and did its own
survey of 360 institutions, finding that most could say how they'd used
the money.

"Treasury's reasons for refusing to adopt this
recommendation have been squarely refuted by" the inspector general,
his office reported to Congress.


Congressional Oversight Panel

About Neil Barofsky

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