A hearing by the Senate Banking Committee yesterday morning, rather cutely entitled "Pulling Back the TARP - Oversight of the Financial Rescue Program," put on display for the first time in public all three of the outside oversight bodies created by the bailout legislation last year (we don't include the Financial Stability Oversight Board since it comprises the top federal financial officials, so therefore is just a buncha guys overseeing themselves).
After 50 minutes of Senators' opening statements (and people think we here in Washington only suffer from the weather), we finally heard opening statements from, in order, the head of the Government Accountability Office (GAO), Acting Comptroller General Gene Dodaro; the Special Inspector General for the Troubled Asset Relief Program (aka SIGTARP) Neil Barofsky; and the chair of the Congressional Oversight Panel (COP), Harvard Prof. Elizabeth Warren.
The GAO has already submitted two reports on Treasury's administration of the TARP, and Warren's COP has issued four reports, including one released this morning. But the very first report by the Special IG was also released in time for the hearing. Barofsky has already managed to come up with some very nice stationery and a cool logo, with the slogan "Advancing Economic Stability through Transparency, Coordinated Oversight and Robust Enforcement." Nevertheless, that Initial Report wasn't all form and flash; there was some solid substance as well. Barofsky revealed four major audits that he's already launched, along with several criminal investigations.
Dodaro revealed that GAO's concerns about the program fall into three broad categories: the lack of monitoring and reporting by Treasury on the use made by recipient institutions of the funds received; the need for better communication and articulation of Treasury's strategy; and the lack of sufficient management structure. Dodaro was pleased that Treasury had (finally) announced it would begin systematically collecting info from the 20 largest recipients, but pointed out that much more is needed...including the tracking of all the 300+ banks that have received TARP funds thusfar. He noted that even as Treasury has been putting out more information, some very fundamental facts remain unexplained...including basic strategy. And he noted that to some extent fleshing out the management infrastructure has to be reliant on the underlying strategy that still remains unarticulated.
Proudly declaring that he's "hit the ground running," Barofsky told the committee that his focus is the same as the slogan emblazoned on the cover of his report: transparency, coordinated oversight and enforcement. In each of those areas, he reported some progress.
For example, Treasury Secretary Timothy Geithner has accepted the SIG's recommendation to post all TARP agreements on the Treasury website. Both the recent agreements with the auto industry and the Citigroup agreements contain "explicit acknowledgment" of the IG's oversight authority. Also, both the Citigroup and the Bank of America agreements contain a provision requiring the banks to account for their use of funds. Barofsky also reported that his office had received approval from OMB to send out letters to each of the TARP recipients "asking them to report on how they have used TARP funds and how they plan to use the funds that they have received but not yet spent." He further announced that TARP recipients will be asked to supply details on executive compensation, and the extent to which they have changed their plans to comply with new restrictions.
Barofsky seems to be playing well with others, including not only the GAO and COP, but also other IGs at relevant agencies, with whom Barofsky has formed a TARP-IG Council. He has begun an audit of Bank of America and promised that his next report would give "very detailed answers" to questions raised about why and how Bank of America received funds from each of three separate TARP programs. Another audit is "designed to address potential outside influences, such as lobbyists, on the TARP application process." He has a website up and running and a hotline, and encouraged "anyone knowing about any improper activities" regarding the program to contact him, and he assured one Senator that he is "committed to protecting whistleblowers."
Finally, the IG recounted several recommendations based on his initial observations, including recommending that Treasury come up with a process and strategy for valuing and managing assets. He pushed for stronger oversight in agreements being entered, and recommended changes to a new program, still in its planning stages, that would avoid some of the pitfalls of earlier programs.
The COP chair, Elizabeth Warren, summarized the panel's first three reports and disclosed that a new report released this morning would reveal for the first time that Treasury "substantially overpaid" for assets purchased under the TARP compared to their current market value. This, she said, was despite the assurances of former Treasury Secretary Paulson that for every $100 injected into the banks, the taxpayer would receive stocks and warrants worth $100. Instead, she said her panel has found, Treasury paid $254 billion for assets that were actually worth only $176 billion--a shortfall of $78 billion. She pointed out there could well be good policy reasons for this shortfall, but in that case, those reasons should have been acknowledged and revealed.
Warren also said that the COP report for March will focus much more deeply on the question of foreclosures. Barofsky promised that his next report would give "very detailed answers" to questions raised about why and how Bank of America received funds from each of three separate TARP programs.
Under questioning from Chairman Chris Dodd (D-CT), Warren in essence declared the former Treasury Secretary a liar, maintaining that his description of the program "was not entirely candid," and pointing out that with his Capital Purchase Program, "at least some was not about infusing capital into healthy banks," as it was described. A little later, under questioning by Committee senior Republican Richard Shelby (R-AL), Warren declared, "Treasury simply did not do what they said they were going to do. They announced one program and implemented another." Worse, she added, even once they had begun the second (capital purchase) program, they did not "price for risk."
They in essence had ten paintings, she said. One was a Picasso and one a Rembrandt; the other eight were by unknown artists--yet Treasury insisted on paying the exact same price for each one.
All three overseers made clear that their biggest concern was the lack of transparency and openness on the part of Treasury. Warren promised that her panel would keep asking questions until they receive answers. Dodd said he wants to institute some systematic way of hearing from them all regularly; he said he wants to know immediately when they aren't getting answers--there's no need to wait a month or so until a hearing is called or a report is released.
-- Beverley Lumpkin