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Archive for the ‘transparency’ Category

Neil Barofsky, the inspector general for the Troubled Asset Relief Program (TARP), is due to deliver his report to the House Oversight and Government Reform Committee tomorrow, Tuesday July 20th.

Barofsky, who is the government’s top bailout watchdog says that the total price tag for federal support stemming from the financial crisis could reach as much as $23.7 trillion in the after factoring in commitments from dozens of programs that were implemented throughout the federal government since 2007, and added that just the financial exposure of TARP and its related programs could reach $3 trillion.

He says that TARP, which started as a $700 billion bailout has expanded way beyond that;

“TARP has evolved into a program of unprecedented scope, scale and complexity. Moreover, TARP does not function in a vacuum but is rather part of the broader government efforts to stabilize the financial system”.

The estimate covers commitments that could have been made by the Federal Reserve, Treasury Department, Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Federal Housing Administration, the Department of Veterans Affairs and other agencies.

In his report, Barofsky also says that the Treasury Department has repeatedly failed to adopt recommendations that his office believes would bring more transparency and accountability to the execution of the bailout.

In a written response, the Treasury again rejected that call saying, “Although it might be tempting to do so, it is not possible to say that investment of TARP dollars resulted in particular loans, investments or other activities by the recipient”.

The report found that fifteen banks had used funds that were acquired from the FDIC to buy weaker rivals, with the banks saying that “the acquisitions helped preserve banking services to customers”.

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Reactions to ‘Treasury Secretary’ Timothy Geithner’s guidelines that were announced yesterday ranged from ‘well meaning’ to ‘toothless’ which in essence is exactly what guidelines are and only time will tell whether banks and other companies will adhere to some or any of them.

What Are The Suggested Guidelines?

• A joint public-private sector fund that will buy as much as $1 trillion of illiquid bank assets.
• A $1 trillion program that will offer new credit to consumers and businesses.
• Banks must be more transparent and accept additional restrictions on acquisitions, dividends and executive pay.
• The administration will inject additional taxpayer funds into banks.

Geithner’s announcement included the following,

“Our plan will help restart the flow of credit, clean up and strengthen our banks, and provide critical aid for homeowners and for small businesses. As we do each of these things, we will impose new, higher standards for transparency and accountability. Banks that negotiate exceptional assistance deals with Treasury, such as the targeted relief provided to Citigroup Inc. last November or to Bank of America Corp. in January, will be required to show how every dollar of capital they receive is enabling them to preserve or generate new lending”.

His suggested cap on executives salaries and bonuses is $500,000 but additional compensation in the form of restricted stock would be permitted, which would open a very big door, very wide!

Reactions to his announcement include,

“The new conditions are all sensible, but the proof is in the pudding and the real question will be how tightly these regulations are going to be put into effect” – Robert Reich, who was an informal adviser to Obama during his campaign.

“Geithner didn’t put it in writing and unless the government has the power to remove executives, there’s no chance here of success. Other than Fannie Mae and Freddie Mac, which the government seized in September, the Treasury so far hasn’t publicly forced a management change at any financial institution” – Ralph Nader

Thus far, more than 360 banks have signed up for cash injections that range from $1 million to $25 billion but few if any restrictions were imposed although the recipients did have to agree to additional oversight.

Under pressure at a ‘House Financial Services Committee’ hearing yesterday, Fed Chairman Ben S. Bernanke implied that the central bank might disclose more information about emergency lending programs that have added to about $2 trillion to the Fed’s balance sheet.

Bernanke said he’d “initiated a review, to be led by Vice Chairman Donald Kohn”, “with a presumption that the public has a right to know and that nondisclosure of information must be affirmatively justified by clearly articulated criteria for confidentiality”.