One of our witnesses today, the Special Inspector General for the Troubled Assets Relief Program, has calculated that, in the TARP and associated programs, taxpayers are potentially at risk for about $2.9 trillion. $2.9 trillion is just short of what the entire Federal Government spent in fiscal year 2008. It's like having a second United States Government budget, dedicated solely to saving the financial system. And that is truly surreal.
With trillions of taxpayer dollars on the line, the need for rigorous oversight is greater than ever before. After listening to testimony from the three witnesses--Neil Barofsky, Special IG for the TARP; Elizabeth Warren, Chair of the Congressional Oversight Panel; and Gene Dodaro, Acting Comptroller General of the GAO--we're glad to say that the oversight bodies are at least asking the right questions. But we're deeply concerned that, half a year into the government's unprecedented bailout, the Treasury Department still appears to be dragging its feet in responding to these oversight bodies, leaving Congress and the public in the dark about its plans to stabilize the nation's financial system.
From our perspective, there were several highlights from today's hearing.
Naturally, we were glad to hear the Committee turn its attention to the government's bailout of AIG, as we've raised our own concerns that a lack of transparency in the AIG bailout fueled an appearance of favoritism toward Goldman Sachs, one of AIG's most prominent counterparties. Barofsky said that his office will soon be announcing an audit focused directly on this question. And Warren announced that the Panel has also launched an inquiry into AIG and the ultimate beneficiaries of the government's assistance. She testified that she is particularly concerned about the opacity of the counterparty arrangements.
Barofsky--whose authority will finally be clarified and strengthened once President Obama signs the recently passed S. 383 into law--delivered the welcome news that he has gotten answers from 364 TARP recipients in response to a survey about the use of taxpayer funds: “Complaints that it was unpractical or impossible to detail how they used TARP funds were unfounded." He also updated the Committee on the work of a task force comprising the FBI, IRS, SEC, and other agencies, all of which are looking into the Term Asset-Backed Securities Loan Facility (TALF), a joint Fed-Treasury initiative to unfreeze consumer and business credit markets. Barofsky has been warning Congress for months that the TALF program is particularly vulnerable to fraud, and he suggested at the hearing that several criminal investigations of TARP fraud are already underway.
We were also pleased to hear the Committee focus on the growing role of the Federal Reserve in the bailout (we would also encourage them to take a closer look at the FDIC). Dodaro said that he is “very, very concerned" that the GAO is statutorily prohibited from conducting certain audits of the Fed, and offered to work with Congress to provide a legislative fix. He also testified in support of S. 340, introduced by Sen. Charles Grassley (R-IA), which would give the GAO greater authority to audit the recipients of federal bailout funds.
Sen. Charles Schumer (D-NY) asked the witnesses if they're looking into conflicts of interest in the recently announced public-private partnerships. Barofsky told the Committee that there are inadequate conflict-of-interest guidelines in place for these new programs, which could be a significant problem since the outside firms assisting in the valuation of toxic loans and assets could also benefit from these same valuations. As we wrote yesterday, concerns have also been raised about Treasury officials and contractors privately benefiting from their involvement in the TARP. In its 100-page report released today, the GAO reiterated that “further actions are needed to complete [Treasury's] review of existing vendor conflict-of-interest mitigation plans and to improve documentation of decisions relating to potential conflicts.”
Professor Warren testified that her panel does “not seem to be a priority for the Treasury Department,” and hinted that legislation might be needed to require Treasury to consult with her:
We are a panel that has lived on "You will receive this information shortly."... When we have enough complex programs that have lots of wires and bells and whistles with no articulation of what it's supposed to accomplish and how we're measuring whether or not it accomplishes that...when that's the case, that means there is no transparency. Indeed, it means Congress and the American people have been cut out of the conversation.
She also reminded the Committee why it's so important for Treasury to articulate a clear vision for the bailout, a point that has been repeatedly mentioned in the GAO's reports:
So transparency is partly about websites and being able to track exactly who got what dollars, and that's an incredibly important part of it. But transparency is [also] about articulating upfront what you're trying to accomplish, why you chose one path instead of another, why one group of people are asked to bear enormous pain, and why others are not. That is the heart, that is the start of this entire process, and until we clearly have Treasury's attention, we have them focused on these questions for purposes of public conversation, I'm afraid we will not go forward.
Sen. Grassley--known around here as the "watchdog's watchdog"--became visibly angry upon learning that Treasury was not giving the Panel all the information it needed:
Ms. Warren, maybe if you're having trouble getting Treasury to give you information, if they'd like to have some Senators sit down with you when you're asking Treasury those questions, I'd like to hear them say why we aren't entitled to this information. Because the same people telling you 'no' come before this Committee and tell us they'll answer our questions. And they don't do it! I don't think they're lying, but there's a culture...that "we're gonna drag our feet as long as we can get away with it."
We share the Senator's outrage, and we would echo a point made by several Committee members: if Treasury really wants to accomplish its goal of restoring public confidence in the financial markets, it had better start cooperating in full with these oversight bodies.
We should also mention that Treasury has completely revamped its website on the financial stabilization programs. While there are some helpful new features, like a decoder to explain some of the bailout-related terms and acronyms, and a map showing the local impact of the Capital Purchase Program, we're not sure that the new site achieves the type of transparency that Warren and others are calling for. For my money, outside projects like SubsidyScope and the bank biographies prepared by Taxpayers for Common Sense are providing much more useful information on the bailout. But if you can find any important new disclosures on Treasury's site that we might be missing, please leave us a comment below.
-- Michael Smallberg