Congressional Watchdog Criticizes Treasury for Failing to Track $350 Billion in Bank Bailout Money
Jan 12th, 2009 | By William Patalon III | Category: Financial NewsThe U.S. Treasury Department has done nothing to make sure $700 billion in taxpayer-provided bailout money is used to buttress the weak U.S. mortgage market, which was the catalyst for the growing global financial crisis, congressional watchdog Elizabeth Warren said Friday.
Warren, who heads a congressionally appointed oversight panel, told ABC News there was no evidence the Treasury had used money from the Troubled Assets Relief Program (TARP) to put a floor under the falling U.S. housing market by avoiding preventable foreclosures.
“There’s just no money that’s gone in that direction,” Warren said. “This one’s not even arguable. The TARP funds themselves have not been used in this way despite congressional statutes requiring them to do so.”
The government has spent the first half ($350 billion) of the bailout money. U.S. Treasury Secretary Henry M. “Hank” Paulson Jr. set aside the second half to be deployed by the incoming Barack Obama Administration. President-elect Barack Obama said last week that he wants more transparency and stricter guidelines for using the second half of the TARP money.
The congressional investigation is just the latest in a series of revelations demonstrating the misallocation of the taxpayer-provided bailout money. An ongoing investigation by Money Morning has detailed how banks have used the first $350 billion: They’ve used the capital to finance investments in other banks – including an investment in China – and to pay bonuses to executives. Then they audaciously refused to say where the money went, or how it was used, Money Morning has shown.
The Congressional Oversight Panel has now added to that list of criticisms. In a draft of a report released Friday, the panel said the Treasury Department has failed to reveal its strategy for stabilizing the financial system and had done little to track how the money was used.
The draft report cited “significant gaps in Treasury’s monitoring of the use of taxpayer money,” including asking financial institutions to account for what those banks, brokerages and insurance companies have done with the taxpayer money. The report also questioned whether Treasury fulfilled the promises made to Congress when it pushed for lawmakers to approve the rescue funds.
Indeed, the panel said in its report that “for Treasury to take no steps to use any of this money to alleviate the foreclosure crisis raises questions about whether Treasury has complied with Congress’s intent that Treasury develop a plan that seeks to maximize assistance for homeowners.”
According to the report, the TARP panel had asked the Treasury Department to respond to 45 questions, but the department either didn’t – or couldn’t – answer a number of them.
The Treasury Department “set up the system and [it] didn’t put any tracking mechanisms on it. [It] didn’t put any restrictions on the banks,” Warren said during an interview on ABC TV’s “Good Morning America.”
“So the money could be used in lots of different ways. It might be used for lending, which was supposedly the initial purpose,” Warren added. “It might be used to buy other banks, it might be used to buy other assets, it might to buy things overseas. Or it may just be stuffed in vaults and left there.”
A Treasury spokesman declined comment, saying the department had not seen a copy of the report, Reuters said.
According to Reuters, the panel said the Treasury hasn’t used any of TARP’s first $350 billion tranche to help borrowers refinance or deal with mortgages that have a face value that is more than the current market value of their homes.
“Treasury needs to be clear as to what, if anything, it has done, and if it insists on taking credit for private sector efforts, it must explain what ‘help’ means,” the draft report said.
Asked if the Treasury had been given too much discretion in the use of the funds, Warren, a Harvard Law School Professor, told TV interviewers that “Congress may want to take a very hard look at that question.
“Ultimately, (I) don’t have a badge, don’t have a gun,” Warren said. “It’s up to Congress what they’re going to do about making more requirements and how Treasury uses this money.”
The Treasury Department must request congressional approval to access the bailout fund’s second $350 billion. President-elect Barack Obama’s economic team, including U.S. Treasury Secretary Nominee Timothy Geithner, is working on an overhaul of the fund to speed the flow of credit to consumers and the economy.
President-elect Obama’s economic team has been talking with the Bush administration about having Treasury Secretary Paulson ask Congress as early as this week for access to the $350 billion remaining in the bailout fund. If Congress rejected such a request, a presidential veto could still free up the money, unless Congress overrode the veto.
“Let’s lay out very specifically some of the things that we are going to do with the next $350 billion of money,” Obama said on the ABC News program, “This Week.” “And I think that we can regain the confidence of both Congress and the American people that this is not just money that is being given to banks without any strings attached and nobody knows what happens, but rather that it is targeted very specifically at getting credit flowing again to businesses and families.”
Source: Congressional Watchdog Criticizes Treasury for Failing to Track $350 Billion in Bank Bailout Money
This is the sixth installment of an investigative series in which Money Morning examines how U.S. banks are using federal bailout funds
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William (Bill) Patalon III is the Managing Editor and Senior Research Analyst for Money Morning, and is also the Managing Editor for The Money Map Report. Patalon's work has appeared in Kiplinger's personal finance magazine, USA Today, and The South China Morning Post, among other publications.
I currently have two mortgages with Countrywide and have been trying to get some help with the interest rate on both. One at 6 and the other at 8. Granted having a second home is a luxury and was purchased as an investment property not knowing the market was tanking. When I call and want to modify or refinance I'm shoved around from employee to employee. I have to jump through hoops just to get anything. As it stands nothing has changed. I believe only a select few are actually being helped. I think that if Countrywide and other lenders would do what that money was earmarked for and that was to help the homeowner lower their monthly payment and use the savings to jump start the economy, things would actually get better. Since I make x amount of dollars and have not defaulted on any loans, good luck trying to get any help. Common sense tells you too also help the families that pay on time because I believe their the ones who are more likely to use their savings more wisely. Go out for dinner, go to the show, buy that new TV, etc. Thanks for reading my vent. Dave in Chicago. Also second home in Wisconsin
How come nobody’s angry at this outrage?!
With economy in shambles, Congress gets a raise
By Jordy Yager
Posted: 12/17/08 05:41 PM [ET]
A crumbling economy, more than 2 million constituents who have lost their jobs this year, and congressional demands of CEOs to work for free did not convince lawmakers to freeze their own pay.
Instead, they will get a $4,700 pay increase, amounting to an additional $2.5 million that taxpayers will spend on congressional salaries, and watchdog groups are not happy about it.
“As lawmakers make a big show of forcing auto executives to accept just $1 a year in salary, they are quietly raiding the vault for their own personal gain,” said Daniel O’Connell, chairman of The Senior Citizens League (TSCL), a non-partisan group. “This money would be much better spent helping the millions of seniors who are living below the poverty line and struggling to keep their heat on this winter.”
However, at 2.8 percent, the automatic raise that lawmakers receive is only half as large as the 2009 cost of living adjustment of Social Security recipients.
Still, Steve Ellis, vice president of the budget watchdog Taxpayers for Common Sense, said Congress should have taken the rare step of freezing its pay, as lawmakers did in 2000.
“Look at the way the economy is and how most people aren’t counting on a holiday bonus or a pay raise — they’re just happy to have gainful employment,” said Ellis. “But you have the lawmakers who are set up and ready to get their next installment of a pay raise and go happily along their way.”
Member raises are often characterized as examples of wasteful spending, especially when many constituents and businesses in members’ districts are in financial despair.
Rep. Harry Mitchell, a first-term Democrat from Arizona, sponsored legislation earlier this year that would have prevented the automatic pay adjustments from kicking in for members next year. But the bill, which attracted 34 cosponsors, failed to make it out of committee.
“They don’t even go through the front door. They have it set up so that it’s wired so that you actually have to undo the pay raise rather than vote for a pay raise,” Ellis said.
Freezing congressional salaries is hardly a new idea on Capitol Hill.
Lawmakers have floated similar proposals in every year dating back to 1995, and long before that. Though the concept of forgoing a raise has attracted some support from more senior members, it is most popular with freshman lawmakers, who are often most vulnerable.
In 2006, after the Republican-led Senate rejected an increase to the minimum wage, Democrats, who had just come to power in the House with a slew of freshmen, vowed to block their own pay raise until the wage increase was passed. The minimum wage was eventually increased and lawmakers received their automatic pay hike.
In the beginning days of 1789, Congress was paid only $6 a day, which would be about $75 daily by modern standards. But by 1965 members were receiving $30,000 a year, which is the modern equivalent of about $195,000.
Currently the average lawmaker makes $169,300 a year, with leadership making slightly more. House Speaker Nancy Pelosi (D-Calif.) makes $217,400, while the minority and majority leaders in the House and Senate make $188,100.
Ellis said that while freezing the pay increase would be a step in the right direction, it would be better to have it set up so that members would have to take action, and vote, for a pay raise and deal with the consequences, rather than get one automatically.
“It is probably never going to be politically popular to raise Congress’s salary,” he said. “I don’t think you’re going to find taxpayers saying, ‘Yeah I think I should pay my congressman more’.”
Paying them less is just going to encourage them to be more corrupt than they already are, if that is even possible.