NYC Letter: Trust Team Barry, Part II

Day 96 of CHOPE

From the moment I take office, my top priority will be to do everything I can to make sure your tax dollars are protected. I'll demand a full review of this financial rescue plan [scil., Emergency Economic Stabilization Act of 2008, from which the TARP* Treasury Fund was created] to make sure that it is working for you. If you, the American taxpayer are not getting your money back, then we will change how this program is being managed.

Then-candidate Obama,
promising tough oversight of government bailout candy
LA CROSSE, Wisconsin October 1, 2008 (CNN)

My Administration is committed to creating an unprecedented level of openness in Government. We will work together to ensure the public trust and establish a system of transparency, public participation, and collaboration.

Mr. Obama,
President of the United States announcing
his sunshine and cellophane administration
TRANSPARENCY AND OPEN GOVERNMENT:
MEMORANDUM FOR THE HEADS OF
EXECUTIVE DEPARTMENTS AND AGENCIES
January 21, 2009 (White House)

Mr. Obama promises sunshine and cellophane and everything else from the thesaurus entry for "super good government". And Mr. Obama must be as good as his word since the mainstream press frequently reports his promises but not many stories on promise keeping. [Pause.] There are so many other really important stories. [Pause.] Don't worry. A promise made by Mr. Obama is a promise you never have to think about again. Really. Don't think about the promises. Everything's fine. Hey! Stop reading. Now.

TROUBLES WITH THE TARP
Special Inspector General's Report
Highlights Potential For Bailout Fraud.

WASHINGTON, April 21, 2009 (Forbes) - Early this morning the Treasury Department's internal watchdog, Special Inspector General Neil Barofsky, issued his quarterly report to Congress on Uncle Sam's bailout fund, also known as the Troubled Asset Relief Program (TARP).

Barofsky's worrisome findings: Several key components of the $700 billion TARP pose "significant" risks for fraud. The Treasury Department "adamantly continues to refuse" to require banks to report on how they have used bailout funds. And despite the administration's attention to executive compensation restrictions for firms that receive bailout cash, it hasn't issued long-awaited rules on pay.

... Barofsky is hopeful the Treasury will implement his recommendations, but if the past is any indication, it's not likely.

... Meanwhile, the Treasury Department--understaffed since the start of the Obama administration--struggles with management and oversight. The Treasury Department has not hired an asset manager for the TARP's investment portfolio, it hasn't priced its investments, and it hasn't determined whether it will convert its preferred shares in companies to common stock.

Here's the report.

Here are some of its findings and recommendations:

• [p.137] In its Initial Report, SIGTARP recommended that Treasury include language in each of its new TARP-related agreements to facilitate compliance and oversight. ... Treasury has indicated, however, that it will not adopt SIGTARP’s recommendation that all TARP recipients be required to do the following:
  • account for the use of TARP funds
  • set up internal controls to comply with such accounting
  • report periodically to Treasury on the results, with appropriate sworn certifications
  In light of the fact that the American taxpayer has been asked to fund this extraordinary effort to stabilize the fi nancial system, it is not unreasonable that the public be told how those funds have been used by TARP recipients.

The SIG is here recommending that Treasury do the very minimum for oversight. And not for the first time.

• [p.138] SIGTARP continues to recommend that Treasury require all TARP recipients to report on the actual use of TARP funds in the manner previously suggested. ...in light of the controversy surrounding AIG’s use of Government assistance, both through the paying of bonuses and in its dealings with counterparties, failure to impose this requirement with respect to the injection of yet another $30 billion into AIG would not only be a failure of oversight, but could call into further question the credibility of the Government’s efforts with respect to the assistance provided to AIG.

Treasury is simply content to shovel taxpayer money.

• [p.138] In its Initial Report, SIGTARP noted that "[t]o date, Treasury has not fully developed significant policies or controls with respect to asset management issues," and recommended that "Treasury needs, in the near term, to begin developing a more complete strategy on what to do with the substantial portfolio that it now manages on behalf of the American people."

  As of the drafting of this report, however, no asset manager had been hired to manage the existing asset portfolio, and no investment strategy has been developed.

• [p.140] In SIGTARP’s view, Treasury did not receive sufficient oversight-enabling provisions in the [TALF, Term Asset-Backed Securities Loan Facility] agreements, nor has it established a sufficient compliance protocol with the Federal Reserve. Although Treasury did obtain certain inspection rights for the disposition SPV [scil., special purpose vehicle] that it is funding, it has no oversight or access rights over any of the borrowers, including the borrowers who default on their loans and surrender the ABS [Asset-Backed Security] collateral to the SPV. Indeed, Treasury does not even have the right to learn the identity of such borrowers.

• [p.144] Treasury should address the confusion and uncertainty on executive compensation by immediately issuing the required regulations.

• [p.145] Treasury announced that it would require CAP [scil., Capital Assistance Program] applicants to set forth how they intend to use CAP funding. Notwithstanding this requirement, Treasury adamantly continues to refuse to adopt SIGTARP’s recommendation that it require CAP recipients (and indeed all TARP recipients) to report on how they actually used TARP funds. Putting aside the value of this recommendation in other TARP programs, SIGTARP submits that it is largely meaningless to require an applicant to report on its intended use of funds without setting up a mechanism to monitor its actual use of funds.

Nope. Instead of bothersome oversight, Treasury simply requires an applicant to cross his heart and hope to die. What could go wrong?

The report also enumerates the many dangers inherent in Treasury's built-for-fraud Public-Private Investment Program (PPIP, pp.146-151).

Mr. Barofsky could have saved himself some trouble by re-issuing his first report again with all its unheeded recommendations.

There is something seriously wrong at Treasury. The nation's financial stability is supposed to be a priority -- the priority -- for Team Barry. So they hire Tim Geithner, a Treasury Secretary who can't do his taxes (but runs the IRS), can't staff his department, inspires zero confidence, can't meet his own rescheduled deadlines, doesn't understand basic oversight and certainly not oversight in a political fishbowl, and can't decide if the economy is recovering or stalling or both.

We told you to stop reading.

CHOPE.

Sunshine. Cellophane. Go away.

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* Troubled Asset Relief Program

Posted by Damian at April 26, 2009 11:45 PM