According to the Washington Post, Hartford Financial and Lincoln National--both of which were identified in POGO's December letter to Congress as companies attempting to gain back-door access to Troubled Asset Relief Program (TARP) funds--have recently been approved as thrift holding companies by the Office of Thrift Supervision. Becoming thrifts allows the two insurance companies to purchase existing banks, which will then make them eligible to receive TARP funds. According to the Post, Hartford is buying the Florida-based Federal Trust Bank for about $10 million, and Lincoln is trying to purchase Newton County Loan and Savings, based in Goodland, Indiana. Hartford is expecting to qualify for anywhere between $1.1 and $3.4 billion in bailout funds as a result of its investment.
Now hold on. According to the Emergency Economic Stabilization Act, the TARP is meant to “provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers”? In November, Treasury used this authority to invest $40 billion in another insurance company, AIG, which was identified as being "systematically significant and at substantial risk of failure." However, just a few months ago, both Hartford and Lincoln claimed to be financially stable. So why are these companies suddenly eligible for bailout funds? I know that $1.1 to $3.4 billion may not seem like much, but should Treasury be giving out any money to companies that appear to be violating the spirit, if not the letter, of the original bailout legislation?
The potential for these companies to receive bailout funds provides more ammo in the battle for expanded oversight of the TARP. While there may not be anything illegal happening in these transactions, it seems clear that Treasury is straying from its original intentions in the bailout legislation. POGO and many others have repeatedly called for improved regulation of the bailout. Now, as Congress debates whether or not to release the remaining $350 billion in TARP funds, with various bills and proposals making the rounds, we hope that taxpayers finally get the protections they deserve.
Be sure to tune in later this afternoon for a House Financial Services Committee hearing on the use of TARP funds in the next administration.
-- Eric Orenstein
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