Oversight panel questions use of bailout money
Treasury official says system is 'more stable' now
WASHINGTON - A congressional panel reviewing the government's $700 billion rescue of the financial sector questioned how the money is being spent and whether it's helping homeowners avoid foreclosure.
In a report made public yesterday, the Congressional Oversight Panel for Economic Stabilization questioned whether the Treasury Department's shifting remedies constitute a strategic response to the crisis.
It was the latest critical assessment of the Troubled Asset Relief Program, the massive federal intervention into the nation's financial system.
The public needs to know more about what Treasury thinks is behind the economy's problems and how it's trying to fix them, the report said.
The report comes as Democrats insist that instead of simply injecting money into banks, the government must use the funds to halt rising foreclosures.
"In the macroeconomic sense, foreclosure reduction is an essential part of getting us out of the problem we're in," House Financial Services Committee chairman Barney Frank, a Massachusetts Democrat, said yesterday as he opened a hearing on the bailout. "The refusal so far to use the money to that purpose has been I think a violation of the intent and undermines the ability to get the votes in this Congress to do things in the future."
The 37-page oversight report offers no specific conclusions, but the questions suggest sharp disagreements with Treasury Secretary Henry Paulson's stewardship of the program and echo some of the criticism raised in a Government Accountability Office audit last week.
Gene Dodaro, acting comptroller general of the United States, told lawmakers that the GAO concluded that the government must toughen its monitoring of the bailout fund to ensure that banking institutions limit their top executives' pay and comply with other restrictions. The auditors said the Treasury Department had no mechanism in place to track how institutions are using taxpayer money.
The tough reviews also come as the Bush administration is considering whether to seek access to the second half of the $700 billion fund.
Neel Kashkari, director of the Treasury office that oversees the bailout program, told lawmakers that Paulson has made no determination about whether to request tapping the remaining money. He defended the work of the program in the face of tough questions from lawmakers.
"The system is fundamentally more stable than it was when Congress passed the legislation," he said. Still, he cautioned that economic anxieties are not helping ease the credit crunch.
"As long as confidence is low, banks will remain cautious about extending credit, and consumers and businesses will remain cautious about taking on new loans themselves," he said.