Green Energy
By JIM KUHNHENN
Associated Press
WASHINGTON — Taxpayers are increasingly exposed to losses and the government is more vulnerable to fraud under Obama administration initiatives that have created a federal bank bailout program of “unprecedented scope,” a government report finds.
In a 250-page quarterly report to Congress, the rescue program’s special inspector general concludes that a private-public partnership designed to rid financial institutions of their “toxic assets” is tilted in favor of private investors and creates “potential unfairness to the taxpayer.”
The report, which examines the six-month old, $700-billion Troubled Asset Relief Program, is scheduled for release today.
Using blunt language, Inspector General Neil Barofksy offers recommendations to protect the public and takes the Treasury to task for not implementing previous advice. The report also commends Treasury and the Federal Reserve for creating some safeguards.
The report’s warnings about the public-private plan’s potential for losses echoes alarms raised by some lawmakers and economists, but Barofksy has significant credibility in Congress and his views are likely to carry ample weight.
Overall, the report says the public-private partnership — using Treasury, Federal Reserve and private investor money — could total $2 trillion. The financial markets responded positively to the program when the Obama administration announced it last month, but the administration is still putting final touches on its implementation.
“The sheer size of the program ... is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives,” the report says.
In particular, the report cited the private-public partnership that would purchase troubled real estate-related securities from financial institutions. Under plans unveiled by Treasury, for every $1 of private investment, Treasury would invest $1 and could provide another dollar in a nonrecourse loan. That money could then leverage a loan from another government fund backed mostly by the Federal Reserve, a step that Barofsky says would dilute the incentive for private fund managers to exercise due diligence.
Barofsky recommends that Treasury not allow the use of Fed loans “unless significant mitigating measures are included to address these dangers.”
Treasury officials maintain that the public-private program is the best response to the troubled loans and securities clogging the system. They say that if government did nothing, the financial crisis could linger for years, and that if government intervened alone by closing troubled banks and taking over their bad assets, taxpayers would be at greater risk.
They argue that private investors and taxpayers would share profits equally and that investors would be the first to lose if the asset purchase ends up losing money.
Among Barofsky’s recommendations:
• Treasury should set tough conflict of interest rules on public-private fund managers to prevent investment decisions that benefit them at taxpayer expense.
• Treasury should disclose the owners of all private equity stakes in a public-private fund.
• Fund mangers should have “investor-screening” procedures to prevent asset purchase transactions from being used for money laundering.
The report lands as the bailout plan comes under new leadership at Treasury. Last week, the White House said it had nominated Herbert Allison, president and CEO of mortgage behemoth Fannie Mae, to replace Neel Kashkari, an assistant Treasury secretary and a holdover from the Bush administration.
In a response to Barofsky’s report dated last week, Kashkari acknowledged that “there are risks associated with investing in or lending against legacy assets, which is in part why markets for them are currently frozen.” Kashkari said Treasury was considering Barofsky’s recommendations.
The report also comes as lawmakers demand evidence that the government’s role is unclogging credit and banks are being held accountable. Despite the infusion of government money, bank lending has declined and some banks have began to bristle at the oversight and the restrictions attached to acceptance of federal assistance.
With a sharp rebuke, Barofsky’s report notes that the Treasury Department has refused to adopt the inspector general’s recommendation that all recipients of TARP money account for the use of their government money.
“In light of the fact that the American taxpayer has been asked to fund this extraordinary effort to stabilize the financial system, it is not unreasonable that the public be told how those funds have been used by TARP recipients,” the report says.
Though the report says Treasury isn’t requiring such information under a new capital assistance program for banks, Treasury informed lawmakers last week that recipients of that money must provide monthly reports that show the volume of new loans. The capital assistance plan would provide additional infusions to financial institutions or convert past loans to those banks into common shares of stock.
“Over the last two months, we’ve significantly increased the amount of transparency into the programs, including actively measuring lending and requiring banks under the new capital program to report on how every dollar of government resources goes toward increasing lending to consumers and businesses,” Treasury spokesman Andrew Williams said.
- More Bailout Failure
From Weasel Zippers, citing WSJ:Nearly 100 U.S. banks that got bailout funds from the federal government show signs they are in jeopardy of failing. The total, based on an analysis of third-quarter financial results by The Wall Street Journal, is up from...
- Banks Retreating From Partnership With Obama Administration
From Ed Morrissey at Hot Air: And after seeing what happened to executives at AIG and other TARP recipients, no one needs to ask why — except apparently for the Washington Post. Thanks to rapid infusions of cash, banks can now take their time unloading...
- Chrysler Financial Refused Government Loan Over Limits On Executive Pay
Guess that didn't work out quite as you'd planned, eh Mr. President? Washington Post: Sources: Chrysler Financial Refused Government Loan Over Limits on Executive Pay By David Cho and Peter Whoriskey Washington Post Staff Writers Monday, April...
- "we Manage Our Capital In Its Aggregate" - Banks Refuse To Say What They've Done With Bailout Money
"We manage capital in its aggregate." I'll have to remember to use that excuse on my wife when I come back from a weekend of whoring and gambling in Las Vegas. "Listen, baby. I don't know where the money went. I manage my capital in its aggregate."...
- And Bush Begat Rumsfeld Who Begat Frank, And He Begat Brownie, And Then He Begat Paulson
Tell me is it that no one knows what to do? No one understands how everything fits together? Or is it THESE GUYS who are basically clueless? Sorry, really didn;t mean to acquire toxic banks assets with that 3/4 of a trillion I was talking...
Green Energy
Bank bailout may hurt taxpayers, be open to fraud
By JIM KUHNHENN
Associated Press
WASHINGTON — Taxpayers are increasingly exposed to losses and the government is more vulnerable to fraud under Obama administration initiatives that have created a federal bank bailout program of “unprecedented scope,” a government report finds.
In a 250-page quarterly report to Congress, the rescue program’s special inspector general concludes that a private-public partnership designed to rid financial institutions of their “toxic assets” is tilted in favor of private investors and creates “potential unfairness to the taxpayer.”
The report, which examines the six-month old, $700-billion Troubled Asset Relief Program, is scheduled for release today.
Using blunt language, Inspector General Neil Barofksy offers recommendations to protect the public and takes the Treasury to task for not implementing previous advice. The report also commends Treasury and the Federal Reserve for creating some safeguards.
The report’s warnings about the public-private plan’s potential for losses echoes alarms raised by some lawmakers and economists, but Barofksy has significant credibility in Congress and his views are likely to carry ample weight.
Overall, the report says the public-private partnership — using Treasury, Federal Reserve and private investor money — could total $2 trillion. The financial markets responded positively to the program when the Obama administration announced it last month, but the administration is still putting final touches on its implementation.
“The sheer size of the program ... is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives,” the report says.
In particular, the report cited the private-public partnership that would purchase troubled real estate-related securities from financial institutions. Under plans unveiled by Treasury, for every $1 of private investment, Treasury would invest $1 and could provide another dollar in a nonrecourse loan. That money could then leverage a loan from another government fund backed mostly by the Federal Reserve, a step that Barofsky says would dilute the incentive for private fund managers to exercise due diligence.
Barofsky recommends that Treasury not allow the use of Fed loans “unless significant mitigating measures are included to address these dangers.”
Treasury officials maintain that the public-private program is the best response to the troubled loans and securities clogging the system. They say that if government did nothing, the financial crisis could linger for years, and that if government intervened alone by closing troubled banks and taking over their bad assets, taxpayers would be at greater risk.
They argue that private investors and taxpayers would share profits equally and that investors would be the first to lose if the asset purchase ends up losing money.
Among Barofsky’s recommendations:
• Treasury should set tough conflict of interest rules on public-private fund managers to prevent investment decisions that benefit them at taxpayer expense.
• Treasury should disclose the owners of all private equity stakes in a public-private fund.
• Fund mangers should have “investor-screening” procedures to prevent asset purchase transactions from being used for money laundering.
The report lands as the bailout plan comes under new leadership at Treasury. Last week, the White House said it had nominated Herbert Allison, president and CEO of mortgage behemoth Fannie Mae, to replace Neel Kashkari, an assistant Treasury secretary and a holdover from the Bush administration.
In a response to Barofsky’s report dated last week, Kashkari acknowledged that “there are risks associated with investing in or lending against legacy assets, which is in part why markets for them are currently frozen.” Kashkari said Treasury was considering Barofsky’s recommendations.
The report also comes as lawmakers demand evidence that the government’s role is unclogging credit and banks are being held accountable. Despite the infusion of government money, bank lending has declined and some banks have began to bristle at the oversight and the restrictions attached to acceptance of federal assistance.
With a sharp rebuke, Barofsky’s report notes that the Treasury Department has refused to adopt the inspector general’s recommendation that all recipients of TARP money account for the use of their government money.
“In light of the fact that the American taxpayer has been asked to fund this extraordinary effort to stabilize the financial system, it is not unreasonable that the public be told how those funds have been used by TARP recipients,” the report says.
Though the report says Treasury isn’t requiring such information under a new capital assistance program for banks, Treasury informed lawmakers last week that recipients of that money must provide monthly reports that show the volume of new loans. The capital assistance plan would provide additional infusions to financial institutions or convert past loans to those banks into common shares of stock.
“Over the last two months, we’ve significantly increased the amount of transparency into the programs, including actively measuring lending and requiring banks under the new capital program to report on how every dollar of government resources goes toward increasing lending to consumers and businesses,” Treasury spokesman Andrew Williams said.
- More Bailout Failure
From Weasel Zippers, citing WSJ:Nearly 100 U.S. banks that got bailout funds from the federal government show signs they are in jeopardy of failing. The total, based on an analysis of third-quarter financial results by The Wall Street Journal, is up from...
- Banks Retreating From Partnership With Obama Administration
From Ed Morrissey at Hot Air: And after seeing what happened to executives at AIG and other TARP recipients, no one needs to ask why — except apparently for the Washington Post. Thanks to rapid infusions of cash, banks can now take their time unloading...
- Chrysler Financial Refused Government Loan Over Limits On Executive Pay
Guess that didn't work out quite as you'd planned, eh Mr. President? Washington Post: Sources: Chrysler Financial Refused Government Loan Over Limits on Executive Pay By David Cho and Peter Whoriskey Washington Post Staff Writers Monday, April...
- "we Manage Our Capital In Its Aggregate" - Banks Refuse To Say What They've Done With Bailout Money
"We manage capital in its aggregate." I'll have to remember to use that excuse on my wife when I come back from a weekend of whoring and gambling in Las Vegas. "Listen, baby. I don't know where the money went. I manage my capital in its aggregate."...
- And Bush Begat Rumsfeld Who Begat Frank, And He Begat Brownie, And Then He Begat Paulson
Tell me is it that no one knows what to do? No one understands how everything fits together? Or is it THESE GUYS who are basically clueless? Sorry, really didn;t mean to acquire toxic banks assets with that 3/4 of a trillion I was talking...