It’s been a busy week for the Treasury Department’s Troubled
Asset Relief Program (TARP). Here are some of the stories we’ve been tracking:
Geithner Extends TARP
Through October 2010
On Wednesday, Treasury Secretary Timothy Geithner sent a letter to
Congress announcing that the administration will be extending TARP through
October 3, 2010 (under the Emergency
Economic Stabilization Act of 2008, the TARP would have otherwise terminated
at the end of this year). Secretary Geithner explained that while many of the
TARP programs are winding down, Treasury wants to have the option to use the
remaining TARP funds on foreclosure
mitigation, providing capital to small and community banks, and increasing Treasury’s
commitment to the Term Asset-Backed
Securities Loan Facility (TALF), which is designed to facilitate consumer and
small business loans. Of course, the funds could also be used “to respond to an
immediate and substantial threat to the economy stemming from financial
instability.”
Secretary Geithner also announced that the administration
now expects to recover all but $42 billion of the $364 billion in TARP funds
that were disbursed in FY09. In the meantime, some of the biggest
banks in the country are actually paying
back their TARP funds. But as ProPublica
reminds us, these updated cost estimates should be taken with a grain of
salt, since some TARP programs—like the foreclosure prevention program and the Public-Private
Investment Program—are just getting started, and there could still be big
losses ahead stemming from the auto industry and AIG bailouts.
Congressional
Oversight Panel Report & Hearing
Treasury’s decision to extend TARP came on the heels of a report released by
the Congressional Oversight Panel that took a comprehensive look at the
overall effectiveness of the TARP program since it was launched last fall. The
conclusion: although TARP—in conjunction with bailout programs run by the Fed
and FDIC—helped to stabilize the financial system and restore market confidence,
significant challenges remain on the road to economic recovery. The Panel
reported that economic stability continues to be threatened by low levels of
bank lending, the unprecedented rate of bank failures, the toxic assets that
remain on many banks’ balance sheets, the growing foreclosure crisis, high
levels of unemployment, and the issue of moral hazard introduced by the
government’s bailout programs. The Panel discussed these and other concerns at
a hearing
yesterday with Secretary Geithner.
Suspension of Public-Private
Investment Fund
On Wednesday, Treasury
suspended a Public-Private Investment Fund run by the TCW Group following
the contentious departure of the company’s chief investment officer. The fund had raised over $1
billion from private investors, which would have been matched with both equity
and debt financing from Treasury to purchase some of the toxic bank assets
that were at the heart of the financial meltdown. POGO
has had major concerns about this program due to the serious potential for
taxpayer losses and conflicts of interest involving the private asset managers.
Former TARP Head Goes
Through the Revolving Door
As
we wrote earlier this week, Neel Kashkari, the former Interim Assistant
Treasury Secretary for Financial Stability, traveled through the revolving door
and landed a cushy gig at the Pacific Investment Management Company (PIMCO), a
firm that was heavily involved in the design of the bailout while Kahskari was
still in office.
SIGTARP Report on
Insurance Companies Receiving TARP Funds Intended for Banks
We
also wrote this week about a new
audit by the Special Inspector General for the Troubled Asset Relief Program
(SIGTARP) that confirmed concerns
we raised last December about insurance companies accessing bailout funds
that were intended for banks. The SIGTARP found that Hartford Financial Services
Group and Lincoln National Corporation were able to obtain a total of $4.3
billion in taxpayer funds by purchasing smaller banks and thrifts, which
technically allowed the companies to qualify for the TARP’s Capital Purchase
Program (CPP). To make matters worse, the SIGTARP reported that the amount of
CPP funds provided was determined by the assets of the parent insurance
companies, not just the assets of the smaller thrifts, and that the companies
ended up using little or no CPP funds to support the activities of the smaller
thrifts. The SIGTARP concluded that the participation of the insurance companies "was incongruous with the spirit and intent of the CPP program."
Treasury Releases "New" Data
Finally, as part of the administration's Open
Government Directive, Treasury
announced this week that it would be making publicly available new sets of data
on tax returns, the disbursement of TARP funds, and bank trading/derivatives. Unfortunately,
as the Huffington
Post pointed out, the quarterly
report on bank trading and derivatives isn’t exactly new—in fact, the report has been publicly
available since 1995. But the good news is that Congress is also taking
action to require the public release of TARP data. Yesterday, the House
Oversight and Government Reform Committee passed legislation introduced by
Rep. Darrell Issa (R-CA)—the Government
Information Transparency Act (H.R. 2392)—that would require the recipients
of bailout funds to file their business activities in a standardized data
format called eXtensible Business Reporting Language (XBRL) that would be
released to the public. The Committee’s passage of this important bill comes
one week after the full
House unanimously passed legislation that would create a centralized
electronic database with real-time updates on the expenditure of TARP funds.
-- Michael Smallberg
UPDATE: In other news, the House took a major step toward preventing future bailouts today as it passed a landmark financial regulatory overhaul bill by a vote of 223-202.
Among other things, the bill contains provisions to create a new
Consumer Financial Protection Agency, rein in executive compensation,
establish a process for shutting down large financial institutions like AIG
and Lehman Brothers, and allow the GAO to audit the Federal Reserve.
Unfortunately, the bill also includes an amendment that POGO opposed that could potentially create a major loophole in the regulation of over-the-counter derivatives. More on this to come...