Watchdog Report: $700B Bailout Working

However, Government's Rescue of Economy has Sparked Anger and Confusion Among Americans

(CBS/ AP)  A government watchdog said the $700 billion bailout for the financial industry played a major role in rescuing the economy over the last year but also engendered anger and distrust among Americans because of secrecy and confusion about the way the program was handled.

The mixed and blunt assessment by Neil Barofsky, the special inspector general in charge of oversight for the bailout fund, comes just as the administration is taking steps to wind down and refocus the Wall Street rescue effort. Barofsky's conclusions are in a quarterly report scheduled for release Wednesday.

Most alarming, Barofsky said Americans may never see any profit from the auto companies or AIG, two major beneficiaries of bailout money, CBS News White House correspondent Chip Reid reports.

Asked to give TARP a grade, Barofsky told CBS' "The Early Show" his would be an "incomplete." As for whether taxpayers can expect to see all the bailout money repaid, Barofsky was equally blunt: "unrealistic."

The Treasury Department has spent more than $454 billion through TARP programs. Forty-seven recipients have paid back nearly $73 billion. That means more than $317 billion remains outstanding with the program set to expire Dec. 31.

The White House would not directly respond to Barofsky's findings but an official notes, "In the coming weeks (pay "czar") Ken Feinberg will release his determination for each of these companies and we are not planning to get ahead of the process (applying to all firms that still owe the government money). But judging from news reports about the concerns he has expressed about retention bonuses we are confident that he is advocating strongly on behalf of taxpayers," CBS News reports.

An administration official said Tuesday that the bailout effort's signature initiative - a capital purchase program that aimed to inject $218 billion into banks - would effectively wrap up at the end of the year.

But even as the administration aimed to refocus the massive Troubled Asset Relief Program on small businesses and homeowners, Barofsky said the effort to save the nation's financial sector cam at great cost to taxpayers, to the integrity of the financial system and to the public's perception of the federal government.

"Despite the aspects of TARP that could reasonably be viewed as a substantial success," he wrote, "Treasury's actions in this regard have contributed to damage the credibility of the program and of the government itself, and the anger, cynicism and distrust created must be chalked up as one of the substantial, albeit unnecessary, costs of TARP."

Barofsky said public suspicion was fed by Treasury's decision not to require banks to report how they used their rescue money and its "less-than-accurate" statements describing the financial condition of nine large banks that benefited from large infusions of aid. The TARP program began under the administration of President George W. Bush and has expanded under President Barack Obama.

The administration official, speaking on the condition of anonymity because the details had not yet been made public, said the Treasury Department plans to cap two TARP programs at levels below initial projections. A program designed to rid big banks of their bad assets will spend $30 billion instead of $75 billion. Another that supports a Federal Reserve effort to ease bank credit will top off at $30 billion instead of $80 billion. A new initiative aimed at banks - the Capital Assistance Program - had no applicants and will also end, the official said.

The overall TARP program has come under criticism in Congress from across the political spectrum. Liberals maintain the program needs to shift its focus from big financial firms to small businesses and homeowners. Conservatives insist the program has been an unnecessary intrusion into the financial sector and should end swiftly.

On Wednesday, Mr. Obama is expected to announce a new TARP program to assist community banks. The American Bankers' Association has asked for $5 billion in rescue-fund money to help small banks extend more loans.

In his report, Barofsky credited the Federal Reserve and the Treasury Department for adopting some of his accountability recommendations over the past several months. But he said several of his agency's proposals for greater transparency have gone unheeded.

The report describes a patchwork of initiatives carried out under the TARP umbrella - some designed to assist the biggest of Wall Street institutions, others to bail out the struggling auto industry and yet others to help homeowners struggling to stave off foreclosure.

Even within those programs, Barofsky found inconsistent attempts to hold recipients of the bailout accountable to taxpayers.

For instance, General Motors, which received $50 billion in government assistance, has an internal guideline that generally prohibits employees from flying in private jets for business travel. Bank of America, which received $25 billion, has the opposite policy, encouraging senior management to use corporate aircraft "for safety and efficiency purposes," the report states.

Bank of America, which reported losses of more than $2.2 billion in the third quarter, had nebulous guidelines for luxury expenses. "Reasonable expenditures occur when the costs of entertainment or events do not exceed the expected benefit to the corporation," according to the company's four-page policy.

Chrysler's policy, on the other hand, runs for 15 pages and lists specific prohibited expenses, including spa services, country club dues, tuxedos and shoe shines.

Overall, Barofsky said the cost of preventing a financial collapse fell into three categories:

- Taxpayers: The government has spent more than $454 billion through TARP programs. The program is set to end Dec. 31, but the administration could seek an extension until next October. Despite the repayments several of the program are not expected to yield returns to the taxpayer, including a $50 billion mortgage modification plan and some of the money injected into auto companies.

- The integrity of the industry: Many firms considered "too big to fail" last year, and thus in need of government assistance, are even bigger now. "Absent meaningful regulatory reform, TARP runs the risk of merely reanimating markets that had collapsed under the weight of reckless behavior," the report sates.

- The credibility of the government: Barofsky wrote that public antipathy for the bailout is fueled by "the lack of transparency in the program." Over the course of the year, Barofsky has called on the Treasury Department to seek more information from banks on how they use their taxpayer assistance.

[garyl615]

In plain english " The taxpayer got screwed and then we got the bird."

[jschmidt27]

TARP was Poulson and Bush's idea. If anyone gets the credit is their doing. TARP re-established the availability of credit in the country which is the lifeblood of business. It was the Obama and the Dems that demonized the banks. Paulson told the banks to take the TARP funds, and then the Dems demonized the banks for taking the funds. That is why so many banks were hot to turn the money back to the Treasury. Obama then saw it as a way of controlling the banks to do his bidding. Banks should be independent from the govt and the Fed should be independent from the Congress. But the Dems want to control it all. SInce the did such a great job watching subprime happen while they controlled Congress for 2 years. And these same jokers are now saying they know how to regulate the finance industry. They havn't a clue. But whatever they do will bite us a few years down the road.

[stephand]

The interesting part of the report is that the areas where it is not likely that the money will be returned are:
- AIG
- Mortgage modification program
- Auto Bailouts

Non of these are banks and only AIG can arguably considered a Wall St. company. If the program stayed within the original intent of making sure the financial institutions were stable, it would have been OK. But, our government had to go push it into all kinds of other side projects as well.

[bc-1948]

And I assume you acknowledge that the first two were done in the last three months of the Bush Administration?

As far as the auto bailouts, I don't think there was much choice on GM - not so sure about Chrysler - as they were not owed by the public but rather a private venture capital company that new the risk when they bought Chrysler. However, if GM had not been proped up, they would now be located in China - the plants are already built - their plan was to move their manufacturing operation to China and then ship back to the US. Also, China is now the largest purchaser of GM products.

[sjc_1]

If you remember when Paulson ran in with his 3 page memo during the 11th hour saying give me $700 billion with no strings attached, the Republican Congress memebers rightly resisted that idea. There reasoning was "let them fail" which was reckless, irresponsible and absurd, but that was the reaction. Somewhere between doing nothing and handing them the keys to the treasury was a potential solution. TARP was poorly handled by Bush and Paulson, but the other half was requested and received by President elect Obama as necessary to insure that the money would be there in case it was needed. President Obama made sure that the required safe guards and oversight were in place to make sure the desired outcome was achieved.

[G-I_Jesus]

Money For Nothing (Dire Straits)

The goal is not to recoup the money from Wall Street but to get the economy going again. Then will the government get their money back from tax revenues.

As for the off-the-wall bonuses to Wall Street executives, it is worth it if Wall Street will accept in exchange that certain financial laws and regulations be changed to protect the economy from nose-diving again.

Now, if we could only do the same thing to the music industry.

[dennisall77]

Obama saved the economy... no two ways about it... Greedservatives will always want Obama to fail because his success means LESS money for the filthy rich... yes, it is THAT simple, folks.

[Marc_1986]

@dennisall77

Can you point me in the direction of two things Obama has done for the economy that have actually been worthwhile?

Economies run in cycles my friend; they cannot fall or rise forever. The economy would have turned around with responsible Gov't regulation (which we're still lacking), but instead Bush and Obama have spent us an additional $1.5 trillion into debt. Obama just happens to be in office to ride the upswing.

[IL-Independent]

To bad it is not that simple. Well maybe it is for simple minded people

[stn_sage]

NO economy that has as much DEBT as the U.S. economy, can or should be considered safe or SAVED...it's far from saved or over...as far as that goes!

But, I'm in no hurry to take the word of Mr. Barofsky, either!

Does anyone really believe that Congress is going to appoint an independent 'watchdog' to examine THEIR mistakes!? Not bloody likely!

We'll see in time whether or not Mr. Barofsky knows what he's talking about...OR, is just another 'shill' whose objective is to 'con' us!?

[dancingmoon]

~Most alarming, Barofsky said Americans may never see any profit from the auto companies or AIG, two major beneficiaries of bailout money, CBS News White House correspondent Chip Reid reports.~

Golly! I never saw that coming did you??? SNARK!

Meanwhile: http://www.washingtonpost.com/wp-dyn/content/article/2009/10/19/AR2009101903546.html

Ralph W. Babb Jr., chief executive of Dallas-based lender Comerica, was compensated for a new country club membership, with an initiation fee and dues of more than $200,000. GMAC Financial Services chief executive Alvaro de Molina benefited from a $2.5 million payment from his company to help cover his personal tax bill.

[jschmidt27]

Did the UAW have to give up their country club that is a drain on the members?

[Tigralady]

CBS - I would also be interested in a report on non-profits that pay extraordinarily high salaries to their execs - they also receive taxpayer monies thru grants, etc

Several years ago, I saw a large non-profit that paid their executive director a half million dollars. They also conducted a fancy fund raiser that cost them almost 4 times as much as they received in donations according to their tax return. There were many other questions raised in my mind from that tax return, and add to that that I'm sure non-profits have also developed creative accounting methods to disguise/manipulate, just as the rest of corporate America. Personally, I now believe that if a "cause" is so important, non-profits should be funded totally by direct contributions and not government grants, state or federal. To me, distribution of grant money is no different than distribution of TARP monies, and warrants just as much scrutiny.

[BeckieBest]

This good news is shure to upset right wing nuts who would rather see the country fail than see our President succeed.

[Marc_1986]

@BeckieBest

Clearly you did not read the article.

[IL-Independent]

Beckie, as usual you happen to be wrong. But then again you like to be wrong

[Tigralady]

I am also interested in ideas on how the average citizen/investor can fight abusive Wall Street companies. Not buy their "products". No direct investment. Check mutual fund investment lists and pull out of those funds that are investing in abusive companies. But since the change of investments of the average citizen is unlikely to have a significant impact, is there anything else we can do?

[stuart-johns2]

I don't understand what this administration is doing so "secretly" that any other administration has done.

The far right has fostered this "paranoid" and "conspiracy" mentality rampant today. And all the partisan devotees buy into it. I guess they would anyway since all 19% of them belong to a group that puts party platform before principle.

[IL-Independent]

by stuart-johns2 October 21, 2009 8:27 AM EDT
I don't understand what this administration is doing so "secretly" that any other administration has done.

The far right has fostered this "paranoid" and "conspiracy" mentality rampant today. And all the partisan devotees buy into it. I guess they would anyway since all 19% of them belong to a group that puts party platform before principle.

Stuart, you know that 19% you keep talking about was Bush's approval rating, and not the percentage of republicans in this country, Right?

[Tigralady]

Yes, CBS, please start a maintained list on your site of the companies that receive TARP monies and then first, pay outrageous bonuses, and second pay executives outrageous amounts.

So which parasites are benefiting from the money?