Pulling The TARP Over Your Eyes
When Treasury Secretary Henry Paulson initially presented his plan for
the $700
billion Troubled
Assets Relief Program (TARP) to
Congress, it was three
pages long and included no
oversight mechanism, stating that
decisions by the Secretary are "committed
to agency discretion, and may
not
be reviewed by any court of law
or any administrative agency." Emphatically rejecting that approach,
Congress crafted a series of supposed checks on Paulson's
power to
use the TARP -- including an independent
inspector general and an
oversight board appointed
by both parties -- and required
Paulson to
ask Congress if he wanted to
access further installments of
the money,
after the first $350 billion was exhausted. However, it has become
clear that Paulson and the Treasury are increasingly operating without
oversight of
any kind.
Despite repeated promises
from lawmakers and Paulson
himself,
the allocation of the TARP funds do not
appear to be receiving much scrutiny.
NOT
WHAT CONGRESS INTENDED:
Initially, Paulson said that "the single
most effective thing we can do
to help homeowners, the American
people, and
stimulate our economy" was to buy troubled assets from financial
institutions.
However, Paulson abruptly changed
course, deciding to recapitalize
banks instead. While this was
likely a
wise
policy decision, it was made
with seemingly no input from Congress.
Furthermore, Paulson has never used the TARP to address the root cause
of the
financial meltdown -- the mortgage market -- much to
the chagrin of
Congressional members, who claimed Paulson was ignoring the intent of
the legislation. Rep. Gary Ackerman (D-NY) expressed his dismay with
Paulson, telling
him, "[Y]ou seem to be flying a $700
billion
plane by the seat of your
pants." Furthermore, while the TARP
debate was raging in September, Treasury slipped
through a tax change giving a $140
billion tax break to the very
banks being bailed out. "This is part
of
our overall effort
to provide relief," a Treasury
spokesman said, defending the
change. "Did the Treasury Department have the authority to do this? I
think
almost every tax expert would agree that the
answer is no," said George
K. Yin, the former chief of staff of the Joint Committee on Taxation.
OVERSIGHT
FAILURE: Paulson was
able to change course with the TARP
because of a breakdown in oversight and because the overall TARP
structure decilnes to hold banks accountable. Elizabeth
Warren, the chairwoman of the congressional oversight panel, said in an
interview that the
Treasury seems "to be lurching
from one tactic to the next" but
admits that the panel is "still
in the
early
stages" of its research. The
Government Accountability Office
(GAO),
meanwhile, said in a report released yesterday that "the Treasury
Department
has failed to address a number
of critical issues while
implementing the $700 billion financial
rescue
plan, including how to ensure its efforts are successful." The GAO
report says that the Treasury "has no policies or procedures in
place for ensuring the institutions...are using the capital
investments in a manner that helps
meet the
purposes of the act," as banks
have been using the funds to bolster
their
balance sheets and to make
acquisitions, rather than lending.
Treasury, meanwhile, "has not yet determined if it will impose
reporting requirements on the
participating financial
institutions." Not
all of the oversight failures are the Treasury's fault, however. The
TARP legislation calls for a special
inspector general to be
appointed by the White House, which has
nominated
assistant U.S. attorney Neil Barofsky. However, his nomination
is currently being blocked
by an unknown Republican senator.
OTHERS
LEAD THE WAY: While
Paulson has been continually resistant to
using TARP funds to buy and restructure troubled mortgages -- saying
that the TARP "is not
a panacea for all our economic
difficulties" -- others have
been less hesitant. Sheila Bair, Chairman of the Federal Deposit
Insurance Corp., has put forth a plan that would prevent
1.5 million foreclosures for
$24.4 billion dollars, modeled on a successful
plan implemented after the
takeover of IndyMac. "We think it's
essential that we actually strike at the underlying
cause
of the problems in the financial
markets," said Michael Krimminger,
special adviser for policy at the FDIC. "We think it's time to make a
decisive difference in the housing markets on foreclosures." Federal
Reserve Chairman Ben Bernanke, meanwhile, issued a plan
last week to revive
the U.S. housing market by
spending $100 billion to buy the debt of
Fannie Mae and Freddie Mac and another $500 billion to buy
mortgage-backed securities that
are guaranteed by Fannie, Freddie,
and Ginnie Mae.In the otherwise badly
orchestrated bailout of
Citigroup, a caveat was included that
mandates Citigroup use the "mortgage
modification procedures" adopted
by the FDIC. As Ed Paisley, Vice
President for Editorial at the Center for American Progress Action Fund
wrote, "These and other measures to help stabilize the housing market
and then
address the root cause of our economy's present ills is what Congress
envisioned when it passed its $700 billion financial rescue
package. ... Paulson should get
with the program."
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Yesterday, "lawmakers and hundreds of onlookers packed into the US Capitol" for the inauguration of the new Capitol Visitor Center.
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"I never sought to privatize Social Security."
-- Sen. Saxby Chambliss (R-GA), 12/1/08
VERSUS
"Chambliss, in contrast, signed a pledge...promising to support
individual accounts if he was elected."
-- Michael Tanner of SocialSecurityChoice.org, 11/18/02
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