Fraud concerns overshadow Geithner’s TARP testimony
By: Susan Ferrechio
Chief Congressional Correspondent
April 22, 2009
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| With CodePink demonstrators behind him, Timothy Geithner testifies Tuesday before the congressional oversight panel of the Troubled Asset Relief Program. (AP PHOTO) |
Amid dire warnings of “staggering” fraud and waste, Treasury Secretary Timothy F. Geithner told a congressional oversight panel that the Troubled Asset Relief Program aimed at rescuing the nation’s financial institutions has had “mixed” results and that he needed more power to keep the $3 trillion program on track.
Geithner was grilled by the five-member TARP oversight panel, made up of lawmakers and outside experts charged with monitoring the massive bailout program being run by Geithner that has already handed out $590 billion.
Geithner’s testimony came as TARP Inspector General Neil Barofsky issued a scathing 250-page report on the program.
The report warned that TARP leaves taxpayers far more vulnerable to big losses than the private companies Geithner is recruiting to buy up toxic mortgage assets. Losses through fraud alone could be “staggering,” according to the report. Barofsky said he knew of 20 separate criminal investigations involving the program and is himself directing six audits into TARP outlays, but did not reveal who is under scrutiny.
Barofsky also pointed to concerns about who has “sought to influence decision making by treasury or bank regulators in considering and deciding on applications for funding from individual banks.”
Barofsky’s report said the public-private partnership — using Treasury Department, Federal Reserve and private investor money — makes the program unwieldy.
“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.”
Geithner conceded the need for more regulation and oversight, but said the program has improved the economy, even if the average business and consumer have yet to feel relief.
“The cost of credit is still very high,” Geithner told the group. “Reports on bank lending show significant declines in lendings for consumer loans, for commercial and industrial loans, although mortgage refinancings have picked up considerably.”
Rep. Jeb Hensarling, R-Texas, questioned Geithner about the government’s “exit strategy” for the $180 billion invested in the American International Group.
Geithner said the government lacked the tools to put badly struggling non-banking financial institutions like AIG into receivership when it started to collapse last fall but is working with Congress on legislation that would give it such power.
“That imperative of getting better authority in place is a centerpiece of what the president is trying to work with Congress to achieve now,” Geithner said.
But he also signaled that there were limits to how much the Treasury should get involved in the financial markets.
“I am concerned about the potential damage you do to franchise value and expectations across the financial system if you have this expectation of creeping long-term government involvement, government ownership,” Geithner said. “That can cause damage. We’ve seen one compelling example of that today. And that’s something that troubles me.”
