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Questions, Doubts Loom Over Bailout Money

President-elect Barack Obama's economic team is broadening the mission of the $700 billion bailout for the financial sector, aiming to unfreeze credit for homeowners, consumers, small businesses and local governments.

The overhaul is aimed at the $350 billion remaining in the Troubled Asset Relief Program and comes amid mounting criticism from lawmakers and watchdogs that the Bush administration has administered the money in an inconsistent way and has not made banks accountable for the money.

The head of a congressional panel overseeing the $700 billion bailout program said Friday that lawmakers need to "take a very hard look" at how banks have used the money and she welcomed Obama's attempts to better define the program's mission.

Obama's selection for Treasury secretary, Timothy Geithner, is developing a "comprehensive set of investment principles," an Obama transition official said Friday. The official, speaking on the condition of anonymity because the plan has not yet been fleshed out, said the economic team will include measures to mitigate rising foreclosures and will place tougher conditions on financial institutions that receive the money, including limits on executive compensation.

With 11 days left before Obama is sworn in as the nation's 44th president, the task of requesting Congress for access to the remaining funds will now likely fall on the new Obama administration.

Geithner is expected to face a confirmation hearing before the Senate next Thursday and he can count on being quizzed vigorously on his TARP proposals.

Though the Obama team is not offering any specifics, the mere fact that it is setting goals for the money won support from the head of a congressional panel that is charged with overseeing how the money is being spent.

"These are powerfully important initiatives," said Harvard law professor Elizabeth Warren. "I'm very pleased that the incoming administration is focused on these issues."

She offered no specific advice on how to free up more credit. "It's going to take a variety of tools," she said. "They may have to move through multiple approaches."

The Congressional Oversight Panel she heads released a report Friday featuring questions about how banks are spending taxpayer money, how the money will combat the rising tide of home foreclosures and Treasury's overall strategy for the rescue.


Click here to view the Treasury Dept.'s December bailout report
But Treasury's Dec. 30 response "did not provide complete answers to several of the questions and failed to address a number of the questions at all," said the panel's second report.

The new document cited an Associated Press investigation that found none of the banks was willing to disclose what they were doing with hundreds of billions of dollars distributed through direct injections of federal money.

"For Treasury to advance funds to these institutions without requiring more transparency further erodes the very confidence Treasury seeks to restore," it said.

Appearing Friday on ABC's "Good Morning America," Warren said that Treasury "didn't put any tracking mechanisms on it."

"They didn't tell the banks what they had to do in order to get the money. It might be used for lending, it might be used to buy other banks ... Or it might just be stuffed in vaults and left there," she said.

"I think that Congress may want to take a very hard look at that question," Warren added. "Ultimately, we don't have a badge, don't have a gun. It's up to Congress."

"In my view, the heart of this problem started with the housing bubble and the mortgage foreclosure mess and in my view, that's where the solution should start as well," Warren said.

Most of the panel's report argues that better responses to unanswered questions are "essential" and explains why it believes Treasury's earlier responses were insufficient.

"Treasury has still not explained precisely what it sees as the problem," reads one assessment of a response deemed inadequate.

At several points, the report tartly explains the meanings of simple terms such as "strategy" and "oversight."

Referring to a question of why Treasury has required Citigroup, but not other firms that got money, to modify mortgages, the report says: "Treasury's refusal to answer this question is one of the most troubling aspects of their letter. The panel intends to do more fact finding on this matter."

Line after line of the column marked "Treasury Response" says simply, "No response."

The panel repeatedly states its reluctance to take Treasury's reassurances at face value.

"Treasury may be 'confident' that it is 'pursuing the right strategy to stabilize the financial system and support the flow of credit to our economy,' but once again, the function of oversight is to evaluate that claim," the report reads. "The question remains unanswered."

The panel's next official action will be a public hearing next Wednesday.

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