Treasury Secretary Timothy Geithner appeared for the first time before the Congressional Oversight Panel this morning, fielding questions on everything from the government's exit strategy for the AIG bailout to the possible conversion of the government's preferred stock holdings to common stock.
One of the more heated exchanges came when Panel Deputy Chair Damon Silvers asked Geithner to explain the rationale behind the Public-Private Investment Program (PPIP). As many commentators have observed, Silvers pointed out that the program will allow private investors to reap enormous profits while assuming almost no risk in the financing of the partnerships. He raised similar concerns about the “profound imbalance” of the government's stake in Citigroup. For instance, after converting the government's holdings in Citi to common stock, taxpayers are no longer guaranteed to receive interest payments from the government's preferred shares.
Geithner kept arguing that we have to think about the “broader prism” of the government's overall stabilization efforts, rather than focusing on the costs and benefits of rescuing individual firms like Citi. Nonetheless, we hope the Panel continues to defend taxpayers' interests when analyzing the effectiveness of the bailout. We've also been raising concerns about the potential for significant taxpayer losses through the PPIP's Legacy Loans Program, and we urge the Panel to consider whether the FDIC is exceeding its statutory authority by guaranteeing up to $1 trillion for the purchase of distressed loans.
Additional concerns about the PPIP were raised in the latest report from Neil Barofksy, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP). The 250-page audit report released today found that “aspects of PPIP make it inherently vulnerable to fraud, waste, and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants, and vulnerabilities to money laundering.”
We're still making our way through the report, but we're glad to see that Barofsky is also taking a close look at executive compensation restrictions for the public-private partnerships, the controversy surrounding the full payments made to AIG's counterparties, and numerous allegations of TARP fraud.
As the government's bailout programs continue to place trillions of dollars at risk, we think it's safe to say that a TARP watchdog is a taxpayer's best friend.
-- Michael Smallberg