WASHINGTON, April 21, 2009
Report: Fraud Risk High In Bailout Plan
TARP Incentives Tilted Toward Private Investors; 20 Investigations Into Alleged Fraud Underway
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Play CBS Video Video Losing Bailout Money To Fraud? Ever since taxpayer money was handed out to U.S. banks, the question has been "where did the money go?" TARP warns that one out of ten bailout dollars could be lost to fraud. Chip Reid reports.
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(CBS/AP)
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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, said nearly 20 alleged fraud schemes related to the bailout are under investigation.
Using blunt language, Inspector General Neil Barofksy offers a series of recommendations to protect the public and takes the Treasury to task for not implementing previous advice. The report also commends the 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 states.
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:
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The report lands as the bailout plan comes under new leadership at Treasury. Last week, the White House announced it had nominated Herbert Allison, the president and CEO of mortgage behemoth Fannie Mae, to replace Neel Kashkari, an assistant Treasury secretary and a holdover from the Bush administration.
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.
From Barofsky's reportIn 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 states.
Though the report says Treasury is not 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.
Meahwhile, the International Monetary Fund said Tuesday U.S. financial institutions could suffer $2.7 trillion in losses from the global credit crisis, part of a worldwide total expected to top $4 trillion.
The $2.7 trillion estimate for the United States was nearly double the IMF's projection from just six months ago. The agency for the first time estimated losses for other regions of the world, saying the global total could surpass $4 trillion.
© MMIX, The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.
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- If our government were really smart they would legalize pot and it would solve a lot of problems all at once,,,,create jobs, revenues, stop cartel violence,,,,,,save billions spent trying to stop something that they will never make a dent in,,,,and quit jailing non violent people ,making them a burden on the system instead of a contributor.
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What jobs, what revenue? We all know you'll just keep growing it in your closet. That's why they call it "weed".
"contributor"? what drunk turned stone head is going to be a contributor?
We know what you've been smoking. - Reply to this comment
- Report: Fraud Risk High In Bailout Plan
TARP Incentives Tilted Toward Private Investors;
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I'm sure the government will watch over these taxpayer funds with the all the due diligence we've come to expect.
You realize that "investors" does not refer to you and me rather the bigwigs in the pipe like friends of AIG, friends of Morgan Stanly, friends of campaign contributors (both republican and democrat), etc.
This is the greatest fleecing of the American public, actually those 10% referred to as "the rich" that pays most of the taxes, that has occurred to date.
If the democratic public keeps blaming the republicans our current politicians could keep this going on for years. It takes several years to discretely siphon off a couple trillion dollars all the while keeping the sheeple distracted elsewhere. - Reply to this comment
- 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.
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So, what happened to that Beckie nitwit who accused me of just imagining that there was a government report? - Reply to this comment
- Somebody needs to lock this bozo up in a closet since he has no freakng clue how to behave when he's let out.
Posted by Rowdy106 at 2:45 PM : Apr 21, 2009
I haven't seen the video.
Did Obama bow to Chavez?
Or did that smile and wink during the power handshake mean the same thing? - Reply to this comment
- we don't have to....DUMBAMA himself is making Bush look like a freaking GENIUS!
Posted by Rowdy106 at 2:40 PM : Apr 21, 2009
Prediction: this will be the main Republican campagn strategy in the next election.
"We don't need to do anything. All we have to do is sit here, and we look great compared to Obama."
Anyone But Obama.... - Reply to this comment
- I agree Jimmyc. I suspect you may have misread something of Rowdy106's. Her last post was prefaced with something from 'lovegetpeace', a real liberal that most likely is on drugs. But for the most part she is pretty far to the right, and not suspect of doing pot.
Posted by speakinup at 3:25 PM : Apr 21, 2009 .......................Just because your DRUG is legal makes you a better person?,,,,,,If our government were really smart they would legalize pot and it would solve a lot of problems all at once,,,,create jobs, revenues, stop cartel violence,,,,,,save billions spent trying to stop something that they will never make a dent in,,,,and quit jailing non violent people ,making them a burden on the system instead of a contributor. - Reply to this comment
- The whole thing is a fraud,,,,,all that has happened is that lobby dollars were paid to congress and the bailouts and stimulus,,,,were paid back by congress in return,,,,not one cent has been put forth to what Washington yelled they needed the money for LAST OCT....that was to help the home foreclosure problem,,,,,since then billions have been handed to that banks and AIG ,,,but not one bit of help to those the money was intended to help in the first place ,,,,,,,,,what congress and corporate America is doing is criminal,,,,,they should ALL be charged with HIGH TREASON.
- Reply to this comment
- These big bankers would never commit fraud. What is with these wild accusations?
- Reply to this comment
- lovegetpeace - you speak of the Republicans being involved with the KKK all the time...
Do yourself a favor - before making a fool of yourself anymore - check out Senator Byrd's previous affiliation with that organization. I think you'll find he was a "grand cyclops" by going to wikipedia. - Reply to this comment
- "Obama's first budget is way, way, way, way out of control. Between that and the non-stimulus stimulus bill we got screwed with somebody will have to pay the piper and there isn't enough money in the "wealthy" to pay that bill. - Jimmyc1955
I agree Jimmyc. I suspect you may have misread something of Rowdy106's. Her last post was prefaced with something from 'lovegetpeace', a real liberal that most likely is on drugs. But for the most part she is pretty far to the right, and not suspect of doing pot. - Reply to this comment
