Treasury May Have Overpaid For Bank Stocks

Bailout Funds, treasury, government, money, currency, TARP, troubled assets, financial, finance, wall street, cash, AP

The federal government overpaid for stocks and other assets in attempting to help U.S. financial institutions last year, a government watchdog said Thursday, taking further issue with the beleaguered $700 billion rescue program.

Elizabeth Warren, chairwoman of the Congressional Oversight Panel for the bailout funds, told the Senate Banking Committee on Thursday that Treasury in 2008 paid $254 billion and received assets worth about $176 billion.

The figures were reached by extrapolating the results of a study of 10 government transactions, comparing the price paid by Treasury and the value of the asset at the time of purchase. Warren did not present details of the transactions the panel analyzed. A full report will be released Friday.

In a bright spot for the rescue program, however, banks that received capital infusions from Treasury have already paid $271 million in dividends to the federal government. A Treasury official said Thursday that banks are expected to pay more than $1.5 billion in dividends by the end of this month. Among them is Wells Fargo, which received a $25 billion infusion. The bank announced this week it would pay Treasury $371 million in dividends.

Still, lawmakers and watchdog groups continued to express frustration with the implementation of the rescue plan, known as the Troubled Asset Relief Program. Congress approved the plan last fall, but members of both parties criticized spending decisions by the Bush administration and former Treasury Secretary Henry Paulson.

The misgivings come as new Treasury Secretary Timothy Geithner is preparing to place the Obama administration's imprint on the program with a sweeping new framework for helping banks, loosening credit and helping reduce foreclosures. Geithner plans to unveil the changes next week.

"The plan will strengthen transparency and accountability measures so that taxpayers know where and how their money is being spent and whether it's achieving real results," said Treasury spokesman Isaac Baker.

Referring to overpayment on assets, Warren said Treasury has failed to specify its goals and methods in helping more than 300 institutions.

"There may be good policy reasons for overpaying, but without a clearly delineated reason we can't know that," Warren said.

Senate Banking chairman Christopher Dodd said the overpayment was sure to "raise eyebrows."

"I can understand some gap," he said. "No one is expecting perfection between the price you pay and what you think you're getting. But that's a pretty large disparity."

The federal bailout of struggling financial institutions has been a source of some embarrassment for the government since Congress passed it in October. News of lavish corporate expenditures, huge executive bonuses and minimal government oversight has eroded already skeptical support for the rescue package.

On Wednesday, President Barack Obama sought to quell those fears by placing limits on executive pay. The new rules require banks that receive "exceptional assistance" from the government to cap salaries, including cash bonuses, at $500,000 for senior executives.

If those firms wanted to pay their executives more, they would have to use stock that couldn't be sold until the bank had repaid the bailout money.

"This is America. We don't disparage wealth. We don't begrudge anybody for achieving success," Mr. Obama said. "But what gets people upset - and rightfully so - are executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers."

But those limits may still leave Wall Street plenty of wiggle room to maneuver.

Consultants on executive pay say the caps imposed by President Obama on Wednesday will probably apply only to a few executives - not star traders, brokers and salespeople who routinely earn whopping pay packages.

Others note Wall Street typically finds ways to exploit loopholes and figure this time will be no different.

"You've got a lot of people on Wall Street who are not executives but still make extremely big salaries," said Mark Borges, a principal at compensation consulting firm Compensia Inc. "I suspect this doesn't impact them at all."

The rules apply only to the future, not to banks that have already received bailout money.

Steve Forbes, CEO of Forbes Inc., told CBS' The Early Show that a better solution would be to make thorough changes of management in some companies and then create long-term incentives for new executives.

"But in politics, there's a rule called the 'golden rule' - he who has the gold makes the rules. Washington is now making the rules," Forbes said.

The Obama administration is also trying to push an ever-growing stimulus package through the Senate. After the House passed a $819 billion package last week, the Senate's plan has grown to nearly $920 billion, prompting some moderates from both parties to work on cutting up to $100 billion the legislation.

With the economy showing fresh signs of weakness, Mr. Obama said Thursday, "The time for talk is over. The time for action is now."

Senate Democratic leaders said they hoped for passage of the legislation by Friday, and prospects appeared to hinge on agreement to a series of changes that would trim the size of a bill.

Senate centrists met privately, and emerged saying they had made progress toward an accord.

"The president made a strong case for a proposal that would be in the neighborhood of $800 billion," said Sen. Susan Collins, R-Maine, who met with Mr. Obama at the White House on Wednesday.
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