Treasury Receives Tongue Lashing for TARP

Last week, the Treasury Department took a tongue-lashing from Capitol Hill lawmakers over a lack of appropriate measures to ensure that institutions receiving taxpayers money are putting the cash to use for the intended purposes.

Lawmakers repeatedly questioned why the Troubled Asset Relief Program had no plans in place to ensure that banks receiving capital infusions are lending to consumers. Originally, the intent of the program was to stabilize the housing market by buying up toxic mortgage assets on the balance sheets of banks. That soon changed, and the Treasury began to take shares in banks in exchange for capital infusions.

"The refusal so far to use the money for that purpose of [foreclosure reduction] has been, I think, a violation of the intent of the bill," House Financial Services Committee Chairman Barney Frank, D-Mass. "What troubled me was when Treasury was asked by the Government Accountability Office, 'What are you doing to ensure banks are lending?,' they appeared to be saying, 'We're not going to try to find that out.' "

In addition to solving the freeze in the credit markets, the $700 billion bailout was also supposed to limit the compensation of executives that received government funds. Lawmakers took issue with the fact that 13 top-level executives of American International Group recently received up to $4 billion in retention payments. The outrage over the retention payments led some lawmakers to call for the resignation of the Treasury's bailout point man Neel Kashkari, who said he was not prepared to assess the level of individual compensation packages.

"You can sit there and not come to a decision as to whether or not a three million dollar bonus is not too much?" asked Rep. Donald Manzullo, R-Ill. "If you even have to ask that question whether it's too much, Mr. Kashkari, you are not the man for the job."

Lawmakers also finally confirmed the appointment of Neil Barofsky as the Inspector General of the TARP fund. His appointment has been held up for weeks by an unknown Republican senator.

"Barofsky will play a crucial role in protecting taxpayer dollars and making certain that the American people's investment in the rescue fund actually puts the economy back on the right track," said Senate Finance Committee Chairman Max Baucus, D-Mont.

Hopefully, for the sake of all Americans Baucus is right. However, the complete lack of oversight or a coherent long-term plan, coupled with the fact that none of the taxpayer dollars poured into these institutions is filtering down to average consumers, certainly doesn’t inspire confidence.

The Treasury must go back to Congress and seek approval before the remaining $350 billion of the TARP fund can be accessed. This time around, Congress should not dole out any cash until the proper safeguards are in place to protect taxpayer money from being spent on executive bonuses. Banks that access taxpayer money should not receive any more funds until they begin lending to average consumers again. A plan also needs to be in place to work with struggling homeowners directly to avoid another round of foreclosures.

Source MarketWatch:

Front Page Photo – upcoming foreclosures – Google Images © Some rights reserved

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