WASHINGTON: US taxpayers were shortchanged by about $78 billion through the Treasury Department’s bank bailout.
The Bush administration overpaid tens of billions of dollars for stocks and other assets in its massive bailout last year of Wall Street banks and financial institutions, a new study by a government watchdog says, adding that it lacked sufficient internal controls to police and protect taxpayers’ investment in the institution.
In a report released yesterday, the Congressional Oversight Panel said the Treasury, when it was headed by Secretary Henry Paulson, received bank assets worth about $176 billion in exchange for capital purchases of $254 billion under the Troubled Asset Relief Program, or TARP.
“The loss estimate is conservative,” Rep. Alan Grayson, a Florida Democrat on the House Financial Services Committee, told reporters. “It could turn out that those assets in the end are worthless. These are massive handouts to favored institutions to try to make up with taxpayer money the mistakes they made with investor money.”
The American public’s stake in the nation’s banking system continues to grow as first the Bush administration and now President Barack Obama’s team work to pull the US out of the deepest recession in at least two generations.
The new special inspector general for the bailout effort, the TARP, issued his first report Thursday and said that the Treasury Department needs to put more safeguards in place to protect taxpayers.
The misgivings came as new Treasury Secretary Timothy Geithner is preparing to place the Obama administration’s imprint on the program with a sweeping new framework for helping banks, loosening credit and helping reduce foreclosures.
Geithner plans to unveil the changes on Monday.
The findings added to the frustrations of lawmakers already wary of the $700 billion rescue plan.
Congress approved the plan in the fall, but members of both Democrats and Republicans criticized spending decisions by the Bush administration and former Treasury Secretary Henry Paulson.
The inspector general’s office now is working with the FBI and other federal law enforcement agencies, and has hired veteran prosecutors and investigators with a broad range of experience, including securities law.
The relief program is a hot topic in Washington as Elizabeth Warren, the chairman of the program’s congressional oversight panel, released the report on the overpayment of $78 billion for bank stocks and other assets.
Testifying before the Senate Banking Committee on Thursday, she said that the Treasury paid $254 billion when it purchased stocks and other bank assets last year. It received assets worth only about $176 billion, however. Her numbers are close but don’t correspond exactly with the inspector general’s.
“Because Treasury has failed to delineate a clear reason for such an overpayment, however, the panel is unable to determine whether these objectives have been met or whether they justified the large subsidy that was created,” Warren said in prepared remarks. “Once again, Treasury needs clear goals, methods and measurements.”
Another fund watchdog urged the Obama administration to be clearer about the true value of the nearly $300 billion the Treasury has infused into more than 300 institutions through purchases of assets, such as preferred stock.
“Treasury needs, in the near term, to begin developing a more complete strategy on what to do with the very substantial portfolio that it now manages on behalf of the American people,” said Neil Barofksy, the special inspector general for the rescue program.
