The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) just released its latest quarterly report to Congress, and Special IG Neil Barofsky will be testifying about it tomorrow morning before the House Oversight and Government Reform Committee. The SIGTARP has also released the results of its survey to 364 banks asking them to report on how they've been using their bailout funds.
We're still making our way through the reports, and will comment on them in greater detail after tomorrow's hearing, but we're very glad to see an entire section of the quarterly report dedicated to an issue that's been a major concern for us: the implementation of “internal firewalls” that are supposed to protect the government from conflicts of interest involving the private fund managers that have been selected for the Public Private Investment Program (PPIP).
POGO has expressed skepticism about these firewalls, and we've encouraged the Treasury Department and the Federal Reserve to take more proactive steps to identify and mitigate the conflicts of interest that are likely to arise with firms like BlackRock, which is already serving as an asset manager for other Fed programs and has a significant financial interest in the same types of mortgage-backed securities that are being targeted by the PPIP.
But even though we're worried that the internal firewalls are not enough to protect the government from conflicts of interest, we still think they're a basic step in the right direction. Which is why we were surprised to learn in the latest SIGTARP report that Treasury has refused to make the firewalls a requirement for the nine PPIP asset managers:
Treasury has decided not to impose such a wall in this instance, despite the fact that such walls have been imposed upon asset managers in similar contexts in other Government bailout-related programs, including by Treasury itself in other TARP-related activities, and despite the fact that three of the nine PPIP asset managers already must abide by similar walls in their work for those other programs.
If nothing else, the reputational risk that Treasury and the program could face if a PPIF [Public-Private Investment Fund] manager should generate massive profits in its non-PPIF funds as a result of an unfair advantage, even if that advantage is not strictly against the rules, justifies the imposition of a wall.
As Treasury officials finalize their agreements with the PPIP assets managers, we urge them to take every possible step to protect taxpayers from conflicts of interest. At the very least, they should require the fund managers to implement strong internal firewalls in order to avoid giving certain firms an unfair competitive advantage.
Naturally, we were also glad to see the report mention that “more than 50% of SIGTARP's ongoing investigations were developed in whole or in part through tips or leads provided on SIGTARP's Hotline,” and we applaud the SIGTARP for setting aside the resources needed to maintain an in-house hotline.
Check out POGO's Twitter feed tomorrow morning for live updates from the hearing.
-- Michael Smallberg
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