This is how Barney Frank characterizes the the Government Accountability Office’s (GAO) first oversight report on Treasury’s administration of TARP (aka “$700 Billion Bailout”). From what I can tell, Frank’s assessment is rather accurate.
The big issues appear to be:
- Treasury’s decision to use TARP funds entirely to recapitalize banks and consumer-credit companies rather than focusing (even minimally) on the purchase of mortgage-backed securities (MBS) in an effort to stabilize the housing market. (Remember, Paulson originally begged Congress for TARP with an almost singular focus on purchase of MBS.)
- Treasury’s unwillingness or inability to require institutions to detail how they are going to use TARP funds. According to the GAO report, “the standard agreement between Treasury and the participating institutions does not require that these institutions track or report how they plan to use, or do use, their capital investments.” The GAO spoke with the eight institutions that received the first injections of TARP funds and found “with the exception of two institutions, institution officials noted that [TARP] money is fungible and that they did not intend to track or report CPP capital separately.” (CPP is the Capital Purchase Program, Paulson’s recapitalization strategy.)
- Treasury’s failure to provide convincing evidence for abandoning the plan to purchase MBS beyond the statement that it believes recapitalization is the best way to stabilize the credit market.
- Treasury’s failure to fully staff the Office of Financial Stability (currently led by Neel Kashkari, Interim Assistant Secretrary of the Treasury for Financial Stability).
- Treasury’s response to the GAO’s concerns about TARP-fund oversight that essentially amounts to “Don’t worry about it; the banks know what they’re doing” and which underscores Paulson and Bernanke’s free-market, supply-side mindset.
Further complicating matters are some basic realities: It is difficult to locate and measure the effectiveness of TARP, in general, and Paulson’s strategy, specifically, because the economic crisis is being addressed from myriad angles (multiple federal agencies, foreign governments, etc.). We are likely not going to be able to confidently say Treasury is “doing it wrong.”
That does not mean, however, we cannot point out that Treasury is not following both the spirit and the letter of the law. Simply because Paulson says recapitalization is the way to go does not mean that buying MBS wouldn’t be as or more effective in stabilizing the economy.
Treasury is making a lot of grand gestures with nice rhetoric and relying on the overwhelmingly complicated nature of the market to obfuscate the fact the department is dropping the ball on requiring institutions to play by a new set of rules.
Disheartening? Yes. BUT there is hope, after the jump.
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As a follow up to Tuesday’s post, urging left-leaning Democrats (like ourselves) not to worry too soon about any alleged “rightward turns” among President-Elect Obama’s appointments and policies, I’ve compiled this short list setting out a few “warning signs.” If the Obama administration comes too close to any of these, it’s cause for concern. Before then, though, let’s relax.
So, without further ado, the top ten signs Barack Obama is moving too far towards Bush:
- What would Yoo do?: after hearing about a planned expansion of executive authority on the news, even John Yoo, David Addington, and Dick Cheney start to look worried.
- Please hold for spook: in his weekly radio address, Obama admits to secretly continuing Bush’s domestic wiretapping program, and announces that any outgoing calls within the United States will now have to “hold for an NSA agent” before being connected.
- Biblical law: four words. Associate. Justice. Pat. Robertson.
- Cowboy diplomacy: George Bush was content to give the German Chancellor a neckrub. Determined not to be outdone, President Obama slaps British Prime Minister Gordon Brown on the rear after a particularly productive G8 meeting.
- Love it or leave it: terming his new healthcare policy the “War on Disease,” Obama and surrogates assert that healthcare is now within the President’s unquestionable “commander-in-chief” powers, and lambast critics for “emboldening the enemy.”
- Preemptive strike: after hearing stories about contaminants in South America-grown tomatoes, Obama orders a preemptive strike on Peru to prevent proliferation of biological weapons.
- Fair game: concerned that CIA intelligence may not support the need for a war against Peru (see #6), Vice President Joe Biden and Robert Novak “out” the entire clandestine service.
- Drill, baby, drill: Alaska? Oh, you must mean Chevron Site #50.
- Teach the controversy: Obama slashes NASA’s budget, and orders it to spend its remaining funds to either (1) send manned missions to heaven, or (2) prove that America is the center of the solar system.
- Justice Kennedy approves: building on Bush’s example, rather than pushing to overrule Roe outright, Obama’s Department of Health and Human Services just tries to chip away at the right by regulation. The latest? Women seeking an abortion must watch Juno, and four consecutive episodes of Seventh Heaven, before being allowed to undergo an abortion.
