Pulling the TARP over taxpayers' eyes
By: Michael Barone
Senior Political Analyst
July 22, 2009
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There is still no evidence that the Troubled Asset Relief Program (TARP) rammed through a Democratic Congress last October by a lame duck Republican president actually averted a credit crisis by stimulating lending. This is because the Treasury Department under a Democratic president refuses to make public the needed data. But thanks to Neil Barofsky, the TARP inspector-general, there is evidence that banks are instead hoarding funds rather than lending them to businesses that desperately need working capital.
When asked by House Oversight and Reform Committee member Rep. Dennis Kucinich, D-OH, yesterday whether the Federal Reserve was "paying banks high interest rates to keep funds parked at the Fed" instead of lending money to credit-starved businesses and consumers, Barofsky said: "Yes. On page 142 of our report (www.sigtarp.gov) there's a chart that depicts exactly what you're saying." Last fall, former Treasury Secretary Hank Paulson told shocked Americans that the $700 billion TARP had to be passed immediately but not to worry because taxpayers would eventually make money on the investments as banks and other institutions getting bailout money paid it back. To the contrary, Barofsky said, not only are banks hoarding TARP funds, it is "very unlikely" that most of the TARP money will ever be repaid, let alone turn a profit.
The hastily passed bill included minimal reporting requirements, so a third of all TARP recipients admit they used the money to repay loans, merge with other banks, and even purchase more mortgage-backed securities from Fannie Mae and Freddie Mac - the two institutions at the heart of the housing market collapse. Some companies are even using TARP to pay off other government loans in what auditors call "bailout arbitrage." And it's all perfectly legal.
Troubled banks, imploding financial firms, and auto companies that drove their businesses into the ditch got billions of dollars from taxpayers, but taxpayers have gotten little in return. Committee chairman Rep. Edolphus Towns, D-NY, noted that "TARP has evolved into a program of unprecedented scope, scale and complexity," yet Treasury has repeatedly rejected Barofsky's recommendations to require recipients to report how they are spending public funds and inform the public of the fair market value of all TARP assets. Enough is enough. It's time for Congress to start issuing subpoenas, for people and documents.
