Treasury Toxic Asset Program Rife With Conflicts Of Interest

The hiring of private firms to provide "independent" advice to both the Treasury Department and the Federal Reserve raises concerns about potential conflicts of interest, according to a letter written by the Project on Governmental Oversight (POGO) and delivered to key members of Congress.

It seems that some of those firms will be highly familiar with the assets in question.

According to POGO's letter, the Federal Reserve Board has contracted with four firms to manage its $1.25 trillion program that purchases mortgage-backed securities. One of those firms also works with the New York Fed to manage three companies it set up to absorb toxic assets, known as Maiden Lane, Maiden Lane II and Maiden Lane III.

The four firms are Pacific Investment Management Co. (PIMCO), BlackRock, Inc., Goldman Sachs Asset Management, and Wellington Management Company, LLP.

In addition, the Treasury Department is expected to approve five private firms to manage what it is calling its "Legacy Securities Program." PIMCO and BlackRock are also on that list.

Legacy appears to be the new term for "toxic."

"It's perfectly understandable that the government is relying on the expertise of these private fund managers to assist with the complex tasks of asset management and valuation," wrote Danielle Brian, director of the independent nonprofit, which investigates government misconduct. "POGO is concerned, however, about the conflicts of interest that could arise if these fund managers are also investing in the same types of assets for their private clients."

A spokeswoman for the Treasury Department declined to comment.

POGO's letter cited a Bloomberg story from early March that highlighted potential conflicts of interest that could arise with this sort of arrangement.

"Citing two people with knowledge of the arrangement, Bloomberg News recently reported that PIMCO had been advising the federal government on the value of $118 billion in assets --including securities backed by residential and commercial loans -- that were guaranteed in the bailout of Bank of America Corp. But PIMCO had also been investing in these same types of mortgage-backed securities for a wide range of private clients," the letter notes.

As of March 31, according to PIMCO's own disclosures, it was holding nearly a billion dollars in its mortgage-backed securities fund.

Comments

[WindySailor]

Nothing, but nothing, goes on in the financial world where conflict of interest is not involved. That's the name of the game.

[maxmcgloin]

One of the biggest scams ever. Banks will swap crap loans with one another but with the govement carrying the lon share of the risk. Meanwhile homeowners are screwed.

[breakingpoint]

I think the word you're looking for is called FRAUD

[breakingpoint]

I think the word is FRAUD.

[jarjarbush]

Please, Geithner's middle name is conflict of interest, the same as Paulson before him and Summers and Bernanke. It's all about funneling money to corporate interests, the workers and the public be damned. Same for the lip service credit card reform bill. The same will be the case for so called health care reform. There will be no single payer and the corporate interests will prevail. Common sense and the public will not factor into the equation.
Change we can believe in? Sure, if you're incorporated and especially if you're "too big to fail"

[PJay1]

Thank you for this article, Ryan Grimm.
It should be all over the MSM, but alas, they're busy with Cheney and Rush, and 'reverse racis m'.

[MalakAlHaq]

Hey fellow Democrats, Independents and Progressives; you still believe in the guy?

I don't!

[johnbatist]

don't believe in any "politcian" or any other smoke and mirror merchant. only believe in you ability to logic through a issue or you'll be doomed .period.

[plaidsportcoat]

Logic-ing my way through this, I say I don't trust him either. And neither do the experts who are doing it on behalf of the taxpayers, and not on behalf of the banks.

[rich misty]

We knew from the outset this entire recovery process was going to be a mess.

You cannot hire professionals who work in a speciality area, that don't work in a speciality area.

[rich misty]

Also, none of this would have happened at all, if it had not been for Republican control of the government.

Our economy was good, and we have a buget surplus at the treasury when Republicans were handed the keys. Of course we expect Republicans to blame us... Republicans were the crooks who robbed the country blind.

[johnbatist]

i disagree completely that its the republicans only . there is effectively one party rule in the us, and that is the party representing business interests. until and unless people realize this basic reality nothing will ever change.

[PJay1]

This Democrat/P­rogressive never did believe in him.

Observation and instincts prevent me from trusting Geithner.

And then there's that little tax *mistake* that if I were to make one like that, I'd probably lose my house and get a new 'home' - one with security bars.

But no one is above the law, so it must have just been an honest mistake by Geithner.

[mikekc]

My belief is fading fast, I need to see something besides giveaways to Corporate America soon. It's going to take more then a press conference or a speech at this point.

[johnbatist]

this will not happen we have a one party system.

[Richard Bee]

This is like a never-ending carousel, with the mainstream media keeping the music going in order to dumbfound the ‘sheeple’. Oh ! Look at those handsome well-dressed Bankers and Politicians – the wouldn’t LIE to us, would they ? Maybe the carousel needs to stop, and the music needs to stop, and the truth needs to be told. With literary license, in the words of BW – “someone planned it (the scam), and someone executed it (the scam)”. Tell us a story Tim about: GHW Bush; and “Easy Money” Alan Greenspan; and William Jefferson “Bill” Clinton; and Ben Bernake; and “Hammering Hank” Henry Paulson; and GW Bush; and Tony Blair; and Gordon Brown; and Jaime Caruana; and Evelyn de Rothschild; and Michael Camdessus; the Bank Of International Settlements; Goldman Sacks; J.P. Morgan; Lehman Brothers; Bank Leumi; the repeal of the Glass-Stegall Act (Thanks Alan!!); The Community Reinvestment Act (thanks Bill!!); the Federal Reserve Bank; the TARP provision to pay interest on Federal Reserve Bank deposits (thanks Hank !!). Tell us the story so we can put you “miserable (your expletive of choice)s” on trial, in jail, and finally see you executed for the greatest treason ever committed on the World. Houdini had nothing on you guys – you almost pulled it off. The greatest theft in the history of the world - planned for 30 years. Tell us the story Tim. So we can all sleep a little better tonight. NOT!!

[tajitj]

It would be nice if people started to care. Once it does fall apart they will be looking for the answers, that is when they can only look at these guys.

[johnbatist]

the system is put through this continious cycle of boom and bust so the the forces controlling the economy can milk it at the expense of the health of the system. after going through so many cycles this system will progressivly weaken fatigued to a point that it will eventually collapse no sort of intervention no matter how drastic will change the eventual collapse . we are very quickly approaching this point now.

[SCG]

The consumer has been consumed.

[mikekc]

of course it's rife with conflict of interest. And soon it will be rife with the lining of pockets of Wall Street insiders. Geitner, Summers, Rahm, Obama and many others will get their pockets lined each campaign season and upon political retirement when they cross over the private sector or start making speeches. Our system is going the route of a third world banana republic. I voted for Obama and still think he's better then McCain and Treasury Secretary Graham would have been, but they are not acting in the interest of 99% of the population on matters of banking and finance. They can find billions in a weekend for whatever industry they decide to give it to, yet they stammer and wring their hands and implement no real reforms. I stopped giving money to the Democrats about 2 months into this term. Until they approach the banking sector differently my money is going to Move On and other progressive organizations that will run ads to apply pressure to these sell-outs.

[wonketteRAWKS]

Well, at least that "change" mantra was a good campaign prop!

[MrsFonebone]

Obama delegates to his cronies and goes out for his photo ops. He makes speeches.
That's it, folks.

[El]

I am a big Obama voter/supporter. But I am quite sure that, like the fatal flaw in a Greek tragedy, Geithner's actions will overshadow and overwhelm much of the good that Obama will or would have done. Very sad.

[johnbatist]

the system is at or beyond the breaking point there is no way to save it.

[sonofsamphm1c]

The tragedy is you have bought into the big lie: Geithner is a bank insider who has hypnotized Obama.

There is not one single thing in this article that is of substance, and somehow you get to Geithner's black cloud will overwhelm all of Obama's good.

Geithner is Obama's good. He's Obama's most effective cabinet member. His successes are mounting daily.

It's not sad; it's fantastic.

[WritusMaximus]

Obama will rubber stamp anything and everything his INDISPENSABLES (Geithner and Summers) bring to his desk. It's a done deal, no news here. Time to move on.

[plaidsportcoat]

...seems like O inherited something he wasn't expecting and now isn't dealing with it so well - the "implosion of the capitalism as we knew it" thing. apparently, capitalists' greed will bring their fave system and those who depend on it down to the ground. does O get that all the reforms he wants to do are going to be based on a dying system?? he's a smart guy, but maybe doesn't want to look at this particular huge thing...

[toypiano]

Not really a surprise, is it. Geithner and Summers designed the system so that banksters could cheat the system and just help themselves to more free money.

They are stupendously tone deaf to the way their obvious disdain of taxpayers is playing out on main street. Why Obama would even hire those two to rob us of the money we need for social programs and reward the corrupt banking sector probably reveals more about Obama's character than theirs.

No Bankster or Lobbyist Left Behind.

[SCG]

Yes, and many of the current crowd were involved in pushing deregulation, the "innovation" of derivatives and the whole subprime mess from the beginning. Now they are to be trusted to have the public's best interests at heart, because by appearances and relationships, you can't make that case.

Search news stories on subprime from the late 90's- early 2000's and you'll read how well connected lobbyists both close friends of former president Clinton and Bush 1 were hired to squelch local, state, and community efforts to stop the predatory lending of the very NY investment banks which the taxpayers are now bailing out.

The banks objected to local laws forbiding such lending practices, on the grounds it was too difficult to deal with all the different jurisdictions, and we needed a federal law to usurp the hurdles to lending.

[Iscarius]

A semi-private corporation that can hand out dollars at will letting their friends in private banks manage 1.25 trillion of those dollars. Obviously there's no problem with this picture!