April 30, 2009 9:59 AM
- Text
Panel: Bailout Overpaid $78B For Stocks
(CBS/AP)
From a banker's perspective, it was a sweet deal.
The federal government's $700 billion financial rescue program has had its share of problems since it was introduced last fall. CBS News correspondent Priya David reports that that the Bush administration's Troubled Assets Relief Program (or TARP), created to purchase the illiquid assets of tottering financial firms, overpaid banks by billions of taxpayer dollars.
One of the big problems with TARP was how to value the toxic assets the banks were putting up in exchange for receiving bailout money.
A congressional oversight panel recently took a look at the first $254 billion the government spent buying shares of the big banks to keep them afloat. After six weeks of number-crunching, what did they find? The Treasury Department substantially overpaid for those assets, by a whopping $78 billion.
The panel said that in the fall, the government spent $254 billion on assets that were only worth $176 billion.
To see the panel's report, click here.
Among the recipients: Citigroup was paid $25 billion by Treasury for assets the panel valued at only $15 billion - $10 billion too much.
The government also paid AIG $40 billion for assets the panel valued at less than $15 billion - $25 billion too much.
And how does $78 billion compare to what the government spends elsewhere? It's more than what the U.S. spends on its nuclear weapons and related programs ($52 billion in 2008), and much than on the National School Lunch Program ($8 billion) and cancer research (approximately $5 billion).
"They're trying to push money into banks, and the question the oversight panel was asking is, are you getting an equivalent amount back?" Harvard Law professor Elizabeth Warren, who chairs the five-member Congressional Oversight Panel, told CBS Early Show anchor Julie Chen.
"Now there could be lots of policy reasons that Treasury might decide that it wanted this money to be in the banks, but our question is the one we put to Secretary Paulson, and that is, are you putting it in and getting back assets that are worth equivalent value? He told us yes; our independent investigation said no."
"So are you saying he was lying?" CBS Early Show anchor Julie Chen asked.
"Well, I'm telling you he told us 'yes,' and our independent investigation said no," said Warren. "It didn't happen. Under these circumstances, when Treasury pays more, effectively they're subsidizing the banks. It's like giving a gift to the banks in order to help prop the banks up."
Warrens said that if subsidization of financial firms is meant to be the government's policy about the use of public funds, then a public debate is required, one which didn't happen.
"Our real point is, if we're going to subsidize [banks], then we need
to call it subsidization, and we need to have that good, old-fashioned debate about whether that's the right way to spend our money here. You don't get to call it one thing and sell the American people on it by calling it that thing and actually have it be something very different."
Warren said her panel's report is not about seeking criminal prosecution but rather shining a light on the actions of the Treasury Department, which was given the responsibility of disbursing $700 billion with tremendous leeway.
"This is about how Treasury is conducting its business," she said. "It's about how Secretary Paulson said that he thought the right way to spend this money is to inject it into banks. We can talk about whether that's the right way to go, [rather than] describing it one way, telling the American people one thing about it, and doing something very different."
"You know, if we didn't have any Congressional oversight, we wouldn't be sitting here this morning talking about this. It's the fact that we have a Congressional oversight panel that's here. We're asking the hard questions. We're making the independent evaluation, and we're going to come back to the public with this," Warren told Chen. "And when everybody is involved, then we can make better decisions about how to get ourselves out of this mess."
AIG told CBS it sold its shares to the government at a fair market value at the time. The company said for the most part its securities are performing, and if they continue to appreciate, taxpayers will get the majority of that upswing ... which in this market could take a very long time.
Anger On Capitol Hill
What appears to be wasteful spending is angering many lawmakers, already wary of the $700 billion rescue plan. Congress approved TARP last fall, but members of both parties criticized spending decisions.
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 Monday.
The oversight panel examined 10 transactions, including eight made under a capital purchase program designed to put liquidity into the banks in hopes of easing credit. That money went to banks considered "healthy" financially but in need of capital to make loans.
Two other transactions went to AIG and to Citigroup Inc. under programs designed to help companies that were facing serious financial difficulties.
Overall, the panel and the analysts it retained to conduct the valuation study found that the Treasury used taxpayers' money to pay $62.5 billion more than the value of assets in the 10 transactions it examined. By extrapolating to the more than 300 institutions that received money, it concluded that the government in effect paid $78 billion more than the actual value of the asset at the time.
"Treasury chose to offer 'one size fits all' pricing in order to encourage all institutions to participate, and in so doing disregarded apparent differences in their financial condition," the report states. "A consequence is that Treasury effectively offered weaker participants greater subsidies than it offered to stronger participants."
In a bright spot for the rescue program, the same banks that received capital infusions from Treasury have already paid $271 million in dividends to the federal government and are expected to pay $1.5 billion more in dividends by the end of this month. Wells Fargo, which received a $25 billion infusion, has already announced it would pay Treasury $371 million in dividends this month.
Reacting to the panel's conclusions, Treasury spokesman Isaac Baker said in a statement: "Treasury's efforts since the fall prevented a systemwide collapse, but more needs to be done to stabilize the financial sector, increase lending and protect taxpayer dollars."
He said the plan that Geithner will announce on Monday aims to free up credit, "while strengthening transparency and accountability measures so that taxpayers know where and how their money is being spent and whether it's achieving real results."
Senate Banking Chairman Chris Dodd, D-Conn., 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."
Another fund watchdog urged the Obama administration to be clearer about the true value of the nearly $300 billion the Treasury has infused into more than 300 institutions through purchases of assets such as preferred stock.
"Treasury needs, in the near term, to begin developing a more complete strategy on what to do with the very substantial portfolio that it now manages on behalf of the American people," said Neil Barofksy, the special inspector general for the rescue program.
The reports of the Congressional Oversight Panel are available at cop.senate.gov.
The federal government's $700 billion financial rescue program has had its share of problems since it was introduced last fall. CBS News correspondent Priya David reports that that the Bush administration's Troubled Assets Relief Program (or TARP), created to purchase the illiquid assets of tottering financial firms, overpaid banks by billions of taxpayer dollars.
One of the big problems with TARP was how to value the toxic assets the banks were putting up in exchange for receiving bailout money.
A congressional oversight panel recently took a look at the first $254 billion the government spent buying shares of the big banks to keep them afloat. After six weeks of number-crunching, what did they find? The Treasury Department substantially overpaid for those assets, by a whopping $78 billion.
The panel said that in the fall, the government spent $254 billion on assets that were only worth $176 billion.
To see the panel's report, click here.
Among the recipients: Citigroup was paid $25 billion by Treasury for assets the panel valued at only $15 billion - $10 billion too much.
The government also paid AIG $40 billion for assets the panel valued at less than $15 billion - $25 billion too much.
And how does $78 billion compare to what the government spends elsewhere? It's more than what the U.S. spends on its nuclear weapons and related programs ($52 billion in 2008), and much than on the National School Lunch Program ($8 billion) and cancer research (approximately $5 billion).
"They're trying to push money into banks, and the question the oversight panel was asking is, are you getting an equivalent amount back?" Harvard Law professor Elizabeth Warren, who chairs the five-member Congressional Oversight Panel, told CBS Early Show anchor Julie Chen.
"Now there could be lots of policy reasons that Treasury might decide that it wanted this money to be in the banks, but our question is the one we put to Secretary Paulson, and that is, are you putting it in and getting back assets that are worth equivalent value? He told us yes; our independent investigation said no."
"So are you saying he was lying?" CBS Early Show anchor Julie Chen asked.
"Well, I'm telling you he told us 'yes,' and our independent investigation said no," said Warren. "It didn't happen. Under these circumstances, when Treasury pays more, effectively they're subsidizing the banks. It's like giving a gift to the banks in order to help prop the banks up."
Warrens said that if subsidization of financial firms is meant to be the government's policy about the use of public funds, then a public debate is required, one which didn't happen.
"Our real point is, if we're going to subsidize [banks], then we need
to call it subsidization, and we need to have that good, old-fashioned debate about whether that's the right way to spend our money here. You don't get to call it one thing and sell the American people on it by calling it that thing and actually have it be something very different."
Warren said her panel's report is not about seeking criminal prosecution but rather shining a light on the actions of the Treasury Department, which was given the responsibility of disbursing $700 billion with tremendous leeway.
"This is about how Treasury is conducting its business," she said. "It's about how Secretary Paulson said that he thought the right way to spend this money is to inject it into banks. We can talk about whether that's the right way to go, [rather than] describing it one way, telling the American people one thing about it, and doing something very different."
"You know, if we didn't have any Congressional oversight, we wouldn't be sitting here this morning talking about this. It's the fact that we have a Congressional oversight panel that's here. We're asking the hard questions. We're making the independent evaluation, and we're going to come back to the public with this," Warren told Chen. "And when everybody is involved, then we can make better decisions about how to get ourselves out of this mess."
AIG told CBS it sold its shares to the government at a fair market value at the time. The company said for the most part its securities are performing, and if they continue to appreciate, taxpayers will get the majority of that upswing ... which in this market could take a very long time.
Anger On Capitol Hill
What appears to be wasteful spending is angering many lawmakers, already wary of the $700 billion rescue plan. Congress approved TARP last fall, but members of both parties criticized spending decisions.
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 Monday.
The oversight panel examined 10 transactions, including eight made under a capital purchase program designed to put liquidity into the banks in hopes of easing credit. That money went to banks considered "healthy" financially but in need of capital to make loans.
Two other transactions went to AIG and to Citigroup Inc. under programs designed to help companies that were facing serious financial difficulties.
Overall, the panel and the analysts it retained to conduct the valuation study found that the Treasury used taxpayers' money to pay $62.5 billion more than the value of assets in the 10 transactions it examined. By extrapolating to the more than 300 institutions that received money, it concluded that the government in effect paid $78 billion more than the actual value of the asset at the time.
"Treasury chose to offer 'one size fits all' pricing in order to encourage all institutions to participate, and in so doing disregarded apparent differences in their financial condition," the report states. "A consequence is that Treasury effectively offered weaker participants greater subsidies than it offered to stronger participants."
In a bright spot for the rescue program, the same banks that received capital infusions from Treasury have already paid $271 million in dividends to the federal government and are expected to pay $1.5 billion more in dividends by the end of this month. Wells Fargo, which received a $25 billion infusion, has already announced it would pay Treasury $371 million in dividends this month.
Reacting to the panel's conclusions, Treasury spokesman Isaac Baker said in a statement: "Treasury's efforts since the fall prevented a systemwide collapse, but more needs to be done to stabilize the financial sector, increase lending and protect taxpayer dollars."
He said the plan that Geithner will announce on Monday aims to free up credit, "while strengthening transparency and accountability measures so that taxpayers know where and how their money is being spent and whether it's achieving real results."
Senate Banking Chairman Chris Dodd, D-Conn., 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."
Another fund watchdog urged the Obama administration to be clearer about the true value of the nearly $300 billion the Treasury has infused into more than 300 institutions through purchases of assets such as preferred stock.
"Treasury needs, in the near term, to begin developing a more complete strategy on what to do with the very substantial portfolio that it now manages on behalf of the American people," said Neil Barofksy, the special inspector general for the rescue program.
The reports of the Congressional Oversight Panel are available at cop.senate.gov.
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