Watchdog says TARP worked but at great cost
WASHINGTON - A government watchdog said the $700 billion bailout for the financial industry played a major role in rescuing the economy over the last year but also engendered anger and distrust among Americans because of secrecy and confusion about the way the program was handled.
The mixed and blunt assessment by Neil Barofsky, the special inspector general in charge of oversight for the bailout fund, appears in a quarterly report scheduled for release today. Barofsky said the Troubled Asset Relief Program has come at great cost to taxpayers, to the integrity of the financial system, and to the public’s perception of the federal government.
“Despite the aspects of TARP that could reasonably be viewed as a substantial success,’’ he wrote, “Treasury’s actions in this regard have contributed to damage the credibility of the program and of the government itself, and the anger, cynicism and distrust created must be chalked up as one of the substantial, albeit unnecessary, costs of TARP.’’
Barofsky said public suspicion was fed by Treasury’s decision not to require banks to report how they used their rescue money and its “less-than-accurate’’ statements describing the financial condition of nine large banks that benefited from large infusions of aid.
The program has been criticized in Congress across the political spectrum. Liberals maintain the program needs to shift its focus from big financial firms to small businesses and homeowners. Conservatives insist the program has been an unnecessary intrusion into the financial sector and should end swiftly.
In his report, Barofsky credited the Federal Reserve and the Treasury Department for adopting some of his accountability recommendations over the past several months. But he said several of his agency’s proposals for greater transparency have gone unheeded.
The report describes a patchwork of initiatives carried out under the TARP umbrella - some designed to assist the biggest of Wall Street institutions, others to bail out the struggling auto industry, and yet others to help homeowners struggling to stave off foreclosure.
Even within those programs, Barofsky found inconsistent attempts to hold recipients of the bailout accountable to taxpayers.
Overall, Barofsky said the cost of preventing a financial collapse fell into three categories:
■ Taxpayers: The government has spent more than $454 billion through TARP programs. Forty-seven recipients have paid back nearly $73 billion. That means more than $317 billion remains available. The program is set to end Dec. 31, but the administration could seek an extension until next October. Despite the repayments several parts of the program are not expected to yield returns to the taxpayer, including a $50 billion mortgage modification plan and some of the money injected into auto companies.
■ The integrity of the industry: Many firms considered “too big to fail’’ last year, and thus in need of government assistance, are even bigger now. “Absent meaningful regulatory reform, TARP runs the risk of merely reanimating markets that had collapsed under the weight of reckless behavior,’’ the report sates.
■ The credibility of the government: Barofsky wrote that public antipathy for the bailout is fueled by “the lack of transparency in the program.’’ Barofsky has called on the Treasury Department to seek more information from banks on how they use their taxpayer assistance.