Wednesday, April 22, 2009

Thievery Under the TARP

Wed Apr 22, 2009 2:59 am (PDT)

Posted on Apr 22, 2009
By _Robert Scheer_ (

We are being robbed big-time, but you can´t say we haven´t been warned.
Not after the release Tuesday of a scathing report by the Treasury Department
´s special inspector general, who charged that the aptly named Troubled
Asset Relief Fund bailout program is rife with mismanagement and potential
for fraud. The IG´s office already has opened 20 criminal fraud
investigations into the $700 billion program, which is now well on its way to a $3
trillion obligation, and the IG predicts many more are coming.
Special Inspector General Neil M. Barofsky charged that the TARP program
from its inception was designed to trust the Wall Street recipients of the
bailout funds to act responsibly on their own, without accountability to the
government that gave them the money.
He pointed to the example of AIG, which has acted as a conduit of funds to
the banks it had insured without being required to tell the government
what it is doing: "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 question the credibility of the government´s
AIG is just one example in a bailout that has left the financial
conglomerates unsupervised as they spend taxpayer money in what the report termed a
government program of "unprecedented scope, scale and complexity," putting
the public and the Treasury Department in the dark as to how the money is
being used by the very tycoons who got us into this mess. "The American
people have a right to know how their tax dollars are being used," Barofsky
wrote in the report, which sharply criticized the government for failing to
hold financial institutions accountable.
For all of its criticism of the original program, designed by the Bush
administration, the report was equally severe in denouncing the Obama
administration´s plan to partner with hedge funds and other private capital groups
to buy up the "toxic" holdings of the banks. Charging that the plan
carries "significant fraud risks," the inspector general´s report pointed out
that almost all of the risk in this new trillion-dollar plan is being borne
by the taxpayers. The so-called private investors would be able to put up
money they borrowed from the Fed through "nonrecourse" loans, meaning if the
toxic assets purchased prove too toxic and the scheme failed, the private
investors could just walk away without repaying the Fed for those loans.
The reason those loans may prove even more toxic than expected and the
price paid by this government-underwritten partnership far too high is that
the government is purchasing the most suspect of the banks´ mortgage
packages. In addition, the plan is to accept at face value the evaluation of those
packages by the very same credit-rating firms whose absurdly wrong
estimates of the dollar worth of these securities helped create the problem that
now haunts the world´s economy. "Arguably, the wholesale failure of the
credit rating agencies to rate adequately such securities is at the heart of
the securitization market collapse, if not the primary cause of the current
credit crisis," the report found.
As with the entire banking bailout, the new plan of Obama´s treasury
secretary, Timothy Geithner, is likely to enrich the very folks who impoverished
the rest of us, as the report notes: "The significant government-financed
leverage presents a great incentive for collusion between the buyer and
seller of the asset, or the buyer and other buyers, whereby, once again, the
taxpayer takes a significant loss while others profit."
At the heart of this potentially massive fraud was the original decision
of Henry Paulson, President Bush´s treasury secretary and a former Goldman
Sachs chairman, to not require the recipients of the bailout, such as his
old firm, to account for how the money was spent. Unfortunately, President
Obama´s administration continued that practice.
The only difference is that the amount of public money being put at risk
is now far greater, and the hedge funds, which are totally unregulated, have
been brought in as the central players. One of the largest of those hedge
funds, D.E. Shaw, carried Obama´s top economic adviser, Lawrence Summers,
on its payroll to the tune of $5.2 million last year. He may have reason to
trust these secretive enterprises that operate beyond the law, but the
public does not.

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