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

[voltage356]

There nothing better than keeping the money all in the family.

[Seamus45]

This is to be expected from Timmy the Tool.

[sonofsamphm1c]

Hilarious - THP censors my first post.

if I remember correctly, Elizabeth warren was able to determine that the financial assets the Federal Reserve accumulated when Merrill Lynch and WaPo and Bear Stearns were sold off were worth less than The Federal Reserve had paid for them.

She made no allowance for the stability premium, which was exceedingly shortsighted of her.

But anyway, where on earth do you folks think she got the valuations that allowed her to determine the assets had gone down in value? From Junior Samples? From the Sioux Falls Livestock Exchange?

No, she got the information from firms that are involved in buying and selling MBS, etc. In other words, PIMCO, Blackrock, Goldman Sachs, etc.

[pragmaticdallasite]

She was making a comparison of how the same amount of money from a private investor would have bought more. It's not really a disputed fact.

Besides that, what exactly is your point?

[sonofsamphm1c]

Because private investors would have no interest in purchasing a stability premium. People protecting the taxpayer's interests would.

My point is it is entirely prudent to go to the market makers for information on market valuations. It is simply information. They have in no way shape shown that anything at all untoward or inappropriate has happened here.

[StephenJK]

YOU are hilarious.

[voltage356]

Please tell us something we don't know already. I'm looking for hardcore news like who is skimming of the top and how much.

[JonShank]

Really!!! I agree.

[Moshe]

Another round of heads Wallstreet wins, tails taxpayers lose.

Stealing a loaf of bread is theft, but stealing trillions of dollars, mostly from people who aren't even old enough to vote yet (by funding their looting with deficit spending, theWallstreet thieves have figured out a way to steal from even the yet unborn), well that's just business as usual among the "too big to fail" mega-corp vultures that are now picking the carcas of our economic future clean.

From torture and war crimes to Wallstreet looting of our treasury, we now live in an era of zero accountability.

And I seriously doubt that "looking forward not backward" is going to fix these problems.

It is, however, a convenient excuse for dodging responsibility and looking the other way while crimes are being committed.

So next time you get a speeding ticket, see if the police officer will just "look forward not backward" and let it slide that you were speeding in a school zone. Honestly, you're probably far less of a threat to the children's futures than what Washington and Wallstreet are doing to them.

Nonetheless, I'm pretty sure your getting the ticket, because the laws still apply to you. You;re not going to get anyone with authority to deem you "too big to fail" and nobody has an incentive to "look forward not backward" for you.

[Lorianne]

Not only are we stealing from people too young to vote, we're stealing from people not yet born!

When these generations come of age, there is no spin machine on earth that is going to assuage their anger.

It's going to be hell to be old in the coming decades

[johnbatist]

the system is rotten to the core. In due time it will collapse before a chance will arise to rebuilt. we are not far for it at this point. don't forget what happened to roman empire. this one's no different.

[rabiddog6708]

In other news of the obvious.....water is wet.

[macohmz]

You can not get good, respectful, ethical behavior from the Democrat and Republican parties. It can't be done. Common sense and a rudimentary understanding of human nature tells you you can't leave the same people in charge of all that money decade after decade and expect them to behave themselves.
I watched a special on money-laundering not long ago. It featured a guy who was supposedly the "Father of money-laundering". He was taken to a warehouse that was filled with cash from drug cartels. He said, and I can't quote him verbatim, "Once you see that much money your morals go right out the window".
The ethics of both parties is and has been in the gutter for sometime. Their gutter-ethics is what's responsible for so much suffering in this country and the world. It can only get worse.

[Lilith33]

Obama said we are being held hostage by the banks he called them t-e--r-r-o-r-i-s-t-s.What do you think that means?

[pragmaticdallasite]

You know, I don't even want to start reading this article because I know it'll ruin my day. Obama, please fire Geithner/Summers and their philosophies now!

[munki]

These asset managers siphon our money!!!!
paid astronomical pay and bonuses...

Need not to be repeated... hmmmm...

[funkalicious]

POGO we have met the enemy and he is US.

at least these guys have a sense of humor with their acronyms

[ProfessorDuh]

Geithner's heartfelt concerns about the taxpayers remind me of those of the Walrus, who tricked the innocent little oysters into a walk and then ate them. But how he wept at their sad fate.
And playing the role of the oysters in this vaudeville show are the U.S. taxpayers and ordinary citizens.
“It seems a shame,” the Walrus said,
 “To play them such a trick,
 After we've brought them out so far,
 And made them trot so quick!”

The Carpenter said nothing but, “The butter's spread too thick!”

[blueken]

It's funny, Christ was a kind and patient man with everyone except the money changers. I think he was on to something.

[blueken]

This is not what I voted for! No more sweet heart deals for banks. All they do is hold on to the money and make borrowing more expensive and harder to do. I'm so glad I have enough cash right now to do without them. I pray my luck holds out.

[johnbatist]

the same old recycled crap.

[stuporman]

you put bushies in charge of treasury and what do you get? more of the same!

[johnbatist]

you put republicratsin charge of treasury and what do you get? the same old, same old!

[Hastings1066]

Yes - Black Rock made over $1 Trillion dealing in Asset Backed Securities - The Treasury has the banks by the gonads - Under the current terms of TARP etc. They have to have so much Capital on their books if they want to loan money - which they have been "commanded" to do = they have to "Borrow" it under the TALF program by selling Asset Backed Securities - hence the stress tests - which determined they needed billions more capital - and so it goes