On Friday POGO submitted a public comment to the Federal Deposit Insurance Corporation (FDIC) raising significant questions about the legitimacy of the FDIC's role in the recently announced Legacy Loans Program (LLP).
Our letter raises concerns about whether the FDIC actually has the authority to participate in the program. Most of us are probably familiar with the FDIC's traditional mission: to insure deposits, examine banks, and manage receiverships for distressed banks. But now it appears the FDIC is invoking an emergency authority in order to participate in the LLP. Under the terms of the program, the FDIC could potentially guarantee financing for up to $1 trillion for public-private investment funds to purchase distressed loans from banks and other financial institutions, despite the fact that a provision in the FDIC's charter would prevent it from incurring financial obligations in excess of $50 billion--$30 billion from the U.S. Treasury, plus the current balance of the Deposit Insurance Fund ($19 billion).
In a recent New York Times article, FDIC officials explained that they are treating these guarantees as "contingent liabilities," and that their accountants have signed off on “no net losses for the program.” But many commentators have argued that the whole point of the program is to subsidize the purchase of toxic legacy loans at inflated prices, meaning that the FDIC is likely to incur significant losses.
We're worried that the FDIC--much like the Federal Reserve--is invoking an emergency authority and potentially placing billions of taxpayer dollars at risk without any approval or oversight from Congress.
We're also skeptical of the FDIC's claim that it will be establishing “waste, fraud and abuse protections...in order to protect taxpayers.” Ever since the public-private investment program was announced a few weeks ago, numerous reports have circulated suggesting that there will be ample opportunities for savvy investors to “game the system.” For instance, Financial Times recently reported that major TARP recipients such as Citigroup and Goldman Sachs are already considering buying toxic assets from their rivals, using government money to drive up prices. And a recent Business Week article imagined a scenario in which private investors could overbid for loans held by banks in which they own significant stockholdings, thereby driving up the banks' shares.
Just to be clear: we're not criticizing the LLP from a strategic standpoint. Our concern is that the administration is overstepping its authority and potentially placing billions of taxpayer dollars at risk without any Congressional approval. We urge Congress to take a much closer look at the FDIC's role in the bailout to ensure that taxpayers' interests are being protected.
-- Michael Smallberg
UPDATE: POGO just sent a letter asking Congress to review whether the FDIC has the authority to participate in the Legacy Loans Program.
One last comment, you should equate the bank's debt to a child support obligation which means the bank must pay it or else loose all their rights like that of a non-custodial parent. Deloitte should know about this as well since they were involved with the integration of US Treasury & USDHHS systems.
"Enlighten the people, generally, and tyranny and oppressions of body and mind will vanish like spirits at the dawn of day."
Thomas Jefferson
Posted by: Scott | Apr 14, 2009 at 08:01 AM
I'll have you know that the FDIC, Deloitte, and some technology companies began preparing for this disaster as far back as the summer of 2004. It was at this time my former company bid on creating communication links between all the banks and the FDIC. I would imagine that the project finished at the end of 2007, or just in time for the event in 2008. What this means is they knew all along what was going on to happen. This was a carefully thought out plan. I will be an expert witness if you so choose. Consequently, the tax payers should not trust them with $1. OVERSIGHT IS NEEDED NOW MORE THAN EVER! We can not let them further sell us out. Those banks should be closed. There are still honest Americans working at the top of the food chain and those folks you had mentioned have lost all creditability. It is not too late to let Citigroup and Goldman fall as they should have at the end of ’08.
Posted by: Scott | Apr 13, 2009 at 07:34 PM