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

[SkipStone]

My solution to the economic crisis:

China needs to invest $1 trillion in U.S. Real Estate, commercial and residential. China has the dollar currency reserves and Treasuries to do it easily. The US gets China to guarantee a $1 trillion Chinese investment in the US economy. As the Chinese redeem their treasuries the money goes straight into US real estate.

The Real Estate market will immediately stabilize on the news, and start to rebound as the Chinese cash in their treasuries and invest dollars in the US.

For the Chinese this is a big win because they will get in at the bottom of the market, and can ride it up for great profit. Once they start buying other parties will want in and the Real Estate market will improve dramatically. Goodbye Toxic Assets!

The influx of dollars back to the US will improve the entire economy, ease credit and strengthen the dollar. Then the Chinese will continue to back the dollar by buying more debt.

Then American consumers will again be able to buy more Chinese products, putting more Chinese back to work. It's a win-win scenario.

This would undo the root cause of the economic crisis and restore stability and confidence to the economic system. Plus it would be a huge face-saving act by the Chinese, excellent propaganda too.

The Chinese can do what America alone cannot. Isn't that our real problem? We are trying to solve a global problem mostly on our own.

[ibsteve2u]

In short, concede the Great Capitalistic War of 1970-2008.­...

[pragmaticdallasite]

yeah pretty much

[NevadaPatriot]

So you are want to put more of America into the hands of Chinese.

Also, this is very unlikely as China has very strict regulations regarding direct foreign investment into other countries. Private institutions / individuals cannot make these investments at this time as they are no 100% legal. It is very difficult for mainland Chinese to move capital offshore legally.

And secondly this does not solve our crisis because Chinese would be mainly looking for commercial real estate and not residential. Also, does little for jobs.

It would be better if this Administration got tough on China with regard to fair trade.

[pragmaticdallasite]

That's the heart of the issue.....­TRADE AGREEMENTS. The government could take a couple of measures that would instantly make our workers more competitive and promote job growth. The only thing is there would be a negative global reaction. Another obstacle is the corporate lobbyists who profit off cheap labor.

What's more important though? Surely the govt. could make some adjustments in our trade agreements to help out our ailing manufacturing industry.

[SkipStone]

Yes, that's why the US gov't and China must negotiate an agreement to allow just that. (Didn't have enough space to say that b4).

As far as "putting more of America in the hands of the Chinese", it would just be an investment, overseen by the US gov't. They could agree to divest at some point either when they've got back a certain percentage, or a certain time. I suppose the US could also guarantee they don't lose any of their investment­.., but that might be going too far.

[ibsteve2u]

On the other hand, China just bought Hummer...

[killpack]

"The influx of dollars back to the US will improve the entire economy, ease credit and strengthen the dollar."

With all due respect, that is incorrect. You can't have an influx of dollars and strengthen the dollar at the same time. They are mutually exclusive. If the Chinese suddenly invest their hordes of dollars in the U.S. that will definitely get credit moving so to speak, but watch out for some serious inflation at the same time.

[SkipStone]

"You can't have an influx of dollars and strengthen the dollar at the same time. They are mutually exclusive.­"

I disagree. There's a difference between repatriating dollars and printing more up. As long as China is holding on to as much as US$1.5 trillion, that's money NOT invested in the US. Most of it represents US debt, not US assets. By converting it to US assets, they can get a better return as the market recovers.

The weakness in the US economy is the very fact that so much of our $$$ assets are overseas, not invested in the US.

[SCG]

Let's sell them the Capital, it's for sale. Many nice monuments to former glories and high ideals.

[johnbatist]

and we can all live happily ever after.

[FidelNegro]

You can blame the politicians all you want but they're just playing the hand they're dealt. The real problem is the lazy, selfish, thoughtless American public. File me under lazy. Corruption is standing in our face, staring us in the eye and we're more than happy to just step around it. I wonder just how bad do conditions have to be before there is a real movement to stop this madness. I'm too young to know myself but would something like this have even had a chance in the 60s?

On another note, has anyone seen the Obama contingency plan here? The media always puts the bailout on Geithner and sometimes Summers, however, didn't Obama say "the buck stops here"? Obama isn't some hapless idiot that can't wrap his head around the simplest concepts of this bailout. He's the one pulling the strings and when all this goes sour you can bet Geithner will make the perfect patsy. What worries me most about our president, the man I hesitantly voted for, is the fact he plays the political game far better than most. I'll sit back and hope my worries have no merit.

[StephenJK]

So what do you think is real? You sound confused, son. Welcome to the club. BUT, make sure you know when to put a stop to your own confusion. And know where to place the blame. :)

[funkalicious]

Bill Gross at PIMCO made a few Billion the day they announced TARP.
When he should have gotten a shave and a Hair cut.
But when Timmy "the tax evader" is your barber you get the whisper numbers.
for two bits. Geithner no doubt has a couple hundred Million coming to him the day he "retires" from public service.

Sadly the only 50% of the population pay taxes the top 1% are still on the gravy train and the rest of us tax payers are left to keep paying the kings ransom.

[killpack]

I hope no one here believes for a minute that the Feds are going after the top 5% like they claim. The top 5% work at AIG and Citi.

[StephenJK]

I see that SonofSam is the only Geithner apologist in here today with one flailing attempt to deflect blame to ELIZABETH WARREN of all people. Stay classy, son!!!

Where are the usual suspects in defense of Lord Geithner? Roll Call: WilliamG, NCYvonne, OKnight, Hortonhearawho2 (actually the last two just ridicule people that call the Obama admin into question) and all the super smart academaniacs who no more about the financial world than anyone here.

Lets see them defend this. I want a good laugh.

[SCG]

I have to say, I admired how you keep your cool and handle these types. I get angry and it deteriorates from there. I borrowed your Skippy addessor, I hope you don't mind. And bravo, for the fitting dig at KTM the other day....He more than had it coming, although I doubt it's made the slightest dent in his ego. The best I could do was ignore him and his snide replies to me

Horton, I raged on and wouldn't let the j.erk have the last word. He left after making a threatening command. He thinks he owns the blog or something? Never contributes an original thought, just trails people and ridicules, pathetic. His pic is fitting.

[sonofsamphm1c]

Do understand what this article is saying? They are getting information. That's it. They make no specific charge of wrong doing. There is nothing here. They are worried there might be conflicts of interest, but there is no indication whatsoever that this true.

It is a just another in a long line of totally empty smears. Empty.

[StephenJK]

We're with you.

[troutbum]

A govt bailout program dealing with banks that might have a conflict of interest!!????? NOOO WAAAAY!!!! I just don't believe it........­........

[Give Peace A Chance]

Free trade.... Europeans and Chinese get GM & Chrysler jobs and American workers get welfare. Wall Street and Bankster get a cut in selling off GM & Chrysler assets. US tax payer funds it and gets nothing but the burden to pay taxes to fund welfare program for the unemployed.

[Islian]

Well, I like Geitner and I am glad we have him. He is doing the very best that can be done with the mess left to Obama by the last administration.

[pragmaticdallasite]

Yeah, the best that HE can because he still buys into a failed philosophy. We need a real consumer advocate running things at the Treasury like Elizabeth Warren.

[NevadaPatriot]

Geithner is a miserable failure, who is unwilling to make tough choices to address the dire problems our country faces.

[sonofsamphm1c]

Geithner is easily Obama's most effective cabinet member, and it's by a wide margin.

[Lorianne]

Gee, you'd think people would've been out on the street protesting this sort of thing.

[Lilith33]

Not in the U.S. ......too much on T.V. wouldnt want to miss family guy.

[pragmaticdallasite]

:) so true. Actually :(

[Hailmaryyy]

"The GM news has dominated the headlines, and rightfully so. But GM is a symptom of the crisis, not the cause. The cause of the crisis is the collapse of credit all over the globe. The shadow banking system is broken because the asset-backed securities market that relies on AAA ratings is broken. The U.S. economy is dependent upon the commercial banks to increase lending and absorb a portion of the credit market share that belonged to the shadow banking system. However, recent data that has gone under the media radar indicates all of the banks that received TARP funding from the federal government saw a combined 3% decrease in lending in March. This follows on a 2% decrease in lending in February from the 19 largest banks in the country that received TARP funding. Credit remains extremely tight, even today. Mike Jackson, the CEO of Auto Nation, stated that 65% of buyers coming into the showroom with prime credit are qualifying for a prime auto loan, and only 10% of subprime borrowers are qualifying for anything. A year ago, 95http:% of prime borrowers were able to qualify, and 50% of subprime borrowers could obtain an auto loan. This pattern of tight credit is true for other consumer loans and for commercial loans."

http://www.escapethenewgreatdepression.com

[doawkins]

almost. The outflow of a trilion dollars a year for foreign crude tapped every ones wallet. It meant for most of last year, people had less to buy cars and housing. The drop of crude was a tremendfous boost to the economy but was offset by a lot of intervention and manipulation antics.

[Lilith33]

Geithner ,Summers and Rubins are toxic assets.

[toypiano]

My favorite comment of the day. And you are so right!

[YewNeekId]

Well what did you expect when obama hired wall street hacks to watch over trillions in free handouts to wall street??

[Mnemanth]

What's funny is that this is covered, and quite obvious, and everyone is watching it like some kind of television show, or dramatic movie. Ooo...the intrigue! Oooo...the drama! Pass the popcorn.
Why, oh why, aren't any charges being brought up? Where's the investigation? Where's the accountability?
This whole ridiculous mess keeps on going and going and.... And it's the same faces who're responsible for the mess still holding their positions, still pulling the same stunts, and still going unpunished!
Is the capitol, by chance, trying to incite a revolution, or what??

[hulagirrrl]

Mnemanth, exactly what I like to know. When are they holding the guilty responsible???

[Mnemanth]

As long as society thinks they're some how not involved, that it some how doesn't affect us as a whole, nothing's going to happen. And these "representatives" know it.
Apathy will be the downfall of America.

[charlespaine]

If Obama's heart is in the right place and he wants to mobilize public pressure on the paid-for Congress for more regulation, he should start indicting some choice Wall Street pigs for fraud whether Congress likes it or not. Dream on, I guess. That might end the stock market rally and hurt consumer confidence. Short term progress will win over long term again.

[what-ever]

Obama and Geithner are just keeping the status quo as far as finance is concerned. There is nothing of any consequence changing. We need to nationalize the FED, and all 12 regional banks and keep them nationalized. We need to have strict laws governing the Derivatives and Credit Default Swaps as well as other machinations the financial sector will create int he future. It is blatantly criminal what is taking place.- the financial sector is lobbying our legislature to ensure no laws prohibit their secret fraudulent dealings that got us into this mess and will continue as usual. As long as the bankers and Wall street and lobbyists get rich and politicans get re-elected - that is all they are concerned with. They are all guilty of fraud, racketeering, collusion, and other criminal activity at the expense of the tax payer and their customers. They should all be hung - every last one of them.

[JohanD]

It is hard to hear and find out almost every day the semi hidden corruption in the Geithner Summer bank bail out. Is even more scandalous to find out that the Banks (their super greedy CEO"s) are working extremely hard to stop any type of regulation. As they have so much (free) money to offer to the lobbyist and all Senate and House members, they are already in a winning position to corrupt them. It becomes harder and harder to believe in the President you voted for on all his promises when you find out that the Banks and Corporations will be even better served under his new government. He already made sure that the department that uses and waste the most amount of money each year: Defense, the Pentagon has Republican leadership that already has promised to give the Pentagon everything it WANTS. It is shameless and criminal. If Corporate America rules Congress, the Pentagon rules Corporate America.
And almost all in Congress are cowards (a handful exceptions at best).

[Savanna]

What would anyone expect but conflicts of interest after all that has gone on over the last thirty
years. Money and power breed conflicts of interest, and they are not going to be straightened out
in six months. Obama's words, about how things won't go on like they have been, mean something to
me, and I would imagine that he is trying to be practical and fix one messed up thing at a time.
The old saying don't throw the baby out with the bathwater certainly fits here. We as Americans
have sat by for years and voted for and let these people get us in this mess. We could at least
try to say..it will get better..li­sten, participate and don't throw stones.