The media's coverage of the new quarterly report by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) has largely focused on one shocking number: $23.7 trillion. That's the total potential government support for programs aimed at stabilizing the financial system, spread out over 50 different initiatives run by the Treasury Department, Federal Reserve, Federal Deposit Insurance Corporation, and other agencies.
Treasury has disputed this number, pointing out that actual cash outlays so far have been less than $2 trillion. And it is highly unlikely that taxpayers will ever be on the hook for the full $23.7 trillion--for instance, some companies have already begun paying the government back for the loans and capital injections they received. Nonetheless, this is a truly staggering figure--nearly double our total economic output in 2008--and it's based on the government's own estimates (see p. 138 of the SIGTARP report to see how they arrived at $23.7 trillion).
But there's a lot more to explore in the SIGTARP report, and we're glad that Special IG Neil Barofsky got a chance to explain many of his findings and recommendations at a hearing yesterday before the House Oversight and Government Reform Committee.
Highlights from the hearing are below the jump:
- Members from both sides of the aisle expressed serious concern over the fact that Treasury has refused to adopt SIGTARP's recommendation for requiring that the nine asset managers selected for the Public Private Investment Program (PPIP) implement internal firewalls or information barriers. These firewalls would theoretically prevent the employees working for the government from sharing insider information with the employees who handle the firm's private investments.
We've actually argued that these firewalls are not enough to fully protect taxpayers from potential conflicts of interest, but they're certainly a step in the right direction, and we're not persuaded by Treasury's excuses for not implementing the SIGTARP's recommendation. Treasury claims that “such an arrangement is simply not practicable in the context of PPIP,” but they've already required that firewalls be in place for companies participating in other bailout programs. For instance, as a manager of assets received by Treasury under TARP, AllianceBernstein has already agreed to “implement information barriers sufficient to prevent the misuse or unauthorized dissemination of material non-public information.” So why couldn't AllianceBernstein put the same barriers in place when it serves as one of the PPIP asset managers?
Treasury also claims that many of the PPIP asset managers would “withdraw themselves from consideration...should Treasury require a segregated investment team.” But wouldn't it be a good thing for the government and taxpayers if the firewall requirement meant that firms with conflicts of interest were less likely to participate? As Barofsky correctly pointed out at the hearing, even the appearance of a conflict can greatly damage the public's confidence in the government's ability to handle the financial crisis.
- The Committee heard a lot about the SIGTARP's recent audit, in which 364 firms that received TARP funds responded to a survey with some revealing information on how they've used the bailout money. Despite the fact that the SIGTARP's survey received a 100% response rate, Treasury has refused to impose a general requirement that banks report on their use of TARP funds. In response to the SIGTARP's audit, Assistant Secretary for Financial Stability Herbert Allison pointed out that “money is fungible...even if TARP investments could be traced to particular uses, those uses cannot be said to be attributable to the TARP investment if the same expenditures would have been made from other sources even in the absence of TARP funding.” And according to the audit, only a handful of banks attempted to physically segregate their TARP funds. Nonetheless, as Barofsky explained to the Committee, the TARP investments represented a tremendous influx in capital for many of the banks, and it's perfectly reasonable to expect these banks to at least give a broad outline of how the TARP funds affected their lending, capital reserves, etc.
Reps. Carolyn Maloney (D-NY) and Marsha Blackburn (R-TN), among others, have introduced legislation that would require more transparency for TARP and other bailout programs. At the hearing, Ranking Member Darrell Issa (R-CA) also raised the possibility of using XBRL for real-time tracking of the banks' TARP-related activities.
- Several Committee members asked Barofsky for more details on a recent conflict in which Treasury asked the Office of Legal Counsel (OLC) to clarify whether or not SIGTARP is an independent entity under Treasury's supervision. Barofsky has told the OLC that it was Congress's clear intent to “preserve SIGTARP's independence and not subject [it] to the Secretary's ability to shut down an audit or investigation,” but at the hearing, Rep. Stephen Lynch (D-MA) brought up the possibility of introducing an amendment to reaffirm Congress's intent.
- We were also glad to hear Barofsky report that the SIGTARP's website has received over 12 million hits from visitors around the country, and that more than half of their criminal investigations began with tips provided to the office's whistleblower hotline.
In other bailout oversight news, Barofsky is joining Elizabeth Warren, Chair of the Congressional Oversight Panel, and Thomas McCool from the Government Accountability Office for a hearing this afternoon before the House Financial Services Subcommittee on Oversight and Investigations on "TARP Oversight: Warrant Repurchases and Protecting Taxpayers." Also testifying at the hearing is Assistant Secretary for Financial Stability Herbert Allison. We hope the Committee will ask Allison to respond to the SIGTARP's latest findings, in addition to the recent report by the Congressional Oversight Panel which found that eleven banks repurchased their warrants from Treasury for only 66 percent of their market value, shortchanging taxpayers by millions of dollars.
A live webcast of the hearing is available here.
-- Michael Smallberg