Public confidence suffered after the Treasury Department claimed that bailout money would only go to healthy banks, according to a report Thursday from the Congressional Oversight Panel. The report also faults Treasury for supporting the largest banks while most Americans face economic hard times.
Unless the government can show a recession-weary public that the program worked, Congress will not approve another such measure when faced with financial threats, the report says. It says "the greatest consequence of (the bailout) may be that the government has lost some of its ability to respond to financial crises."
Treasury spokesman Mark Paustenbach said the government can respond to future panics using tools it gained under sweeping financial overhaul signed into law this summer.
The law "will take the next steps forward by reining in excessive risk on Wall Street (and) preserving economic opportunity on Main Street," Paustenbach said.
The new report says the crisis would have been even deeper without the bailout, known as the Troubled Asset Relief Program, or TARP. Economic experts consulted by the panel agreed that the bailout was "both necessary to stabilize the financial system and that it had been mismanaged and could pose significant costs far into the future," the report says.
Panel chairwoman Elizabeth Warren did not vote on the report, panel member Damon Silvers told reporters. She also did not hold a conference call with reporters, as she has done for most of the group's monthly reports. Warren has kept a low profile in recent weeks as the White House considered what role she would play in setting up a new consumer financial regulator.
Warren, a Harvard Law School professor,, a Democratic official said Wednesday. The official spoke on condition of anonymity to discuss the appointment before an official announcement.
Warren is credited with proposing the agency in a 2007 article. She attracted national attention running the oversight panel, criticizing the Treasury Department's secrecy and sparring publicly with Treasury Secretary Timothy Geithner.
Silvers stepped into that role Wednesday, telling reporters that Geithner "just prolonged the backstop of the financial system" by extending his TARP authority through October.
After October 3, the Treasury can no longer commit to new uses for the money.