TARP Watchdog's Report: Treasury Misled Public On Bailouts

WASHINGTON — The credibility of the government's $700 billion financial rescue program was damaged by claims a year ago that all of the initial banks receiving support were healthy, a new report contends.

Special Inspector General Neil Barofsky generally found that the government had acted properly in October 2008 as it scrambled to implement the Troubled Asset Relief Program to avert the collapse of the U.S. financial system.

But the report said that then-Treasury Secretary Henry Paulson and other officials were wrong to contend at an Oct. 14 press conference that all nine institutions receiving the first round of support – $125 billion – were sound.

"These are healthy institutions, and they have taken this step for the good of the economy," Paulson had declared at the time.

Barofsky said that the fact that Citigroup Inc. and Bank of America Corp. soon required billions in additional assistance highlighted the inaccuracy of that claim and raised questions about the whole effort. In addition, Merrill Lynch, which was also in the original nine, was in the process of being acquired by Bank of America because of its weakening financial position.

"Statements that are less than careful or forthright – like those made in this case – may ultimately undermine the public's understanding and support," the report said. "This loss of public support could damage the government's credibility and have long-term unintended consequences that actually hamper the government's ability to respond to crises."

In announcing the $125 billion in support to the nine institutions, Paulson had said that by building up the capital reserves of these healthy institutions, it would allow them to resume normal lending to businesses and consumers and help stabilize the financial system.

The nine institutions, including JPMorgan Chase & Co. and Wells Fargo & Co., held about 75 percent of the assets of the U.S. banking system at the time.

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A joint statement from Treasury, the Federal Reserve and the Federal Deposit Insurance Corp. also referred to the nine institutions as healthy.

In commenting on Barofsky's report, the Federal Reserve generally supported the findings, saying "transparency and effective communications are important to restoring and maintaining public confidence, especially during a financial crisis."

But Assistant Treasury Secretary Herbert Allison Jr., who now heads the bailout program for the government, said that any critique of the announcements made a year ago should take into consideration the unprecedented circumstances facing financial regulators at the time.

"We believe the most important lesson from this history is that quick, forceful action prevented a catastrophic meltdown of the system," Allison wrote in his response to Barofsky's findings.

Barofsky serves as the auditor for the Troubled Asset Relief Program, a position that was created by Congress when it passed the $700 billion bailout fund on Oct. 3, 2008.

In his new report, Barofsky reviewed Paulson's decision to switch the focus of the program from buying up toxic assets from banks to spur new lending to direct injections of capital. The report cited developments that supported Paulson's contention that financial conditions were deteriorating so quickly that the government did not have the time needed to get the toxic asset program up and running.

The government just announced last week that two large investment funds have raised the minimum amounts needed to begin purchasing toxic assets from banks, a full year after Congress authorized the program.

The new report also provided information on interviews conducted with embattled Bank of America CEO Kenneth Lewis and Paulson and Federal Reserve Chairman Ben Bernanke over their conversations regarding Bank of America's acquisition of Merrill Lynch.

A congressional committee has investigated whether the government pressured Lewis, who announced this past week that he would leave Bank of America at year's end, to continue with the merger despite sharply rising losses at Merrill Lynch and to delay revealing those losses.

The report said that it had "found nothing to indicate Treasury and Federal Reserve officials instructed Bank of America executives to withhold the public disclosure of losses," the report said.

Comments

[BlueSkyPilot]

In an unheard of collaborative effort the top 500 Wall Street Executives are planning to pool all of their knowledge and expertise and write a new financial text book.
It will be titled "We've got ours, now we want yours too!"
To be released soon.

[givesflack]

So, if it was, as someone on here mentioned, that the US was over leveraged by trillions of dollars and used the bailout money to cover up the losses from the damages, BUSH,GREENSPAN, and that money that the banks lost was apparently covered by the Fed, wouldn't that insinuate that they think that all the money loaned to them actually belongs to them while they are collecting triple their losses? Who knows how much more they intend to get? Is this a infinite bailout? Are we becoming the United Sachs and Morgan? OK then, I think it's our right and our duty to go to banks and request any amount of money from them since they seem to have it all and don't think any of it is ours. WHICH IT IS!

[DelTaRF]

Everything but the little people have become too big to fail.

Everyday we pay the consequences of Reaganomics and neoconservative economics

good articles; http://iamned2.blogspot.com

80's: Arthur Laffer, MIlton Freidman, Greenspan, Alexander M. Haig, Jr, Donald T. Regan, James A. Baker 3rd,
Later: Robert Rubin, Bernanke, Paulson

[pbr90]

"Chase what matters" the tag slogan of Chase Bank's new marketing gimmick couldn't be more suited to a nation oppressed by its own Treasury in having to bail out banks, and suffer the injustice of receiving the new 3% of transaction fees in advances on its credit card, the minimum fee of which is $10.00.

So, a 30 cent fee for a $10 advance is $10.00 in addition to the $10.00 taken.

Americans need to recognize that no one deserves equal justice and consideration more than Chase Bank in charging these kinds of fees, and Americans should be more than willing to trade places with Chase, and allow them to feel their pain in such unconscionable policies that the U.S. Government allows them to do under the unwatchful guidance of Biden's Wilmington, DE rules.

How DE wound us dictating to America what American companies are permitted to get away with in violation of consumer rights, consumer protections, and all manner of decent interpersonal relations is unknown, but they have pursued that banner throughout the years with unyielding applomb, and far less fanfare than is warranted.

If chasing what matters, matters, then Chase is what should be chased to bring it in line with American protection, not dictatorial totalitarianism, and Biden should be leading the charge.

[DismayedRepub]

I was remembering some events that led up to the passage of the bailout. It all started off with one of the Chinese finance ministers travelling to Washington for a one day meeting. Two days after he returned home the administration announced that we had an economic crisis and $700B would fix it.

After the bailout bill was finally passed on the second try I heard one of our (Oregon) congress members been interviewed on a local radio station. He said that the majority of that money went to the Chinese. They we not happy with the loses on their USD bonds and demanded we make good on it.

They are lying when they say they can’t account for half of the TARP money. They just don’t want us to know how close we came to being shut down by these guys.

[JoshPr]

I predict there will be no reform or change and Obammi will discourage his followers, hence losing 2012. Dems will also lose a lot of seats in the house in 2010.

good articles; http://iamned2.blogspot.com

Obama= fail

[PragmaticStatistic]

It is no surprise! We have been lied to about the Vietnam War, about the weapons of mass destruction in Iraq, about the deregulation of the banking industry, and more. This revealing news about the banks just goes to prove that we live in a Corporate Capitolistic society where a corporate oligarchy controls a Republic form of government disguised as a Democracy.

According to articles on the Internet, one in seven mortgages is under water, yet only one in ten workers is officially unemployed. Does this difference indicate a significant amount of employed people are financially in trouble? Or, is the unemployed number unrealistic?

So how accurate are the claims about our economy?

Try looking at it this way, the bulk of the stimulus money went to support employed people rather than the unemployed. The stimulus package seems designed to retain jobs not create them. The banks we bailed out are suddenly as profitable as they suddenly failed. Yet, the banks still have the same toxic loans they had before the bailout, continue to make the same risky bets that caused them to fail, and credit does not seem to have eased very much.

But, hey, don’t trust this unemployed worker [intentional oxymoron], I could be lying like the rest of them. After all, all I have time do now is write responses to articles on the web like this one.

[duxguts]

You mean they lied to 'We the people'.

[greihing]

The only way to hurt these guys is to turn off the tap of money that we, the consumer, supplies them. There are a couple of ways to fight back.

1) Pull out all your assets from any of these banks. Put them in credit unions which have had a better run with people's money. Switch your ATM card to a credit union so banks cannot profit on that $2.00 "ATM Fee" (rip off). Manage your money well so you don't have to utilize an ATM while out of town.

2) Switch any loans (auto, business) or mortgages to credit unions. Allow them to make the money off your interest payments

3) Contact the bank if you have a credit card. Demand a lower interest rate if you think that the are charging too high a rate. If they refuse to work with you, stop payment until they do. Chase Bank raised my interest rate from 14.9 to 18.2 in a 3 month period.

If we as consumers turn off the tap of money they receive from our interest payments, then they will have to adjust their business plan. (And maybe force them to foster competition, but don't hold your breath on that one.

This will only work though by a massive sustained nationwide campaign.

[mike42nola]

Those are decent suggestions but it will not do anything to resolve the primary problem. I see the primary problem as the Federal Government and it's agencies abusing the trust that we have placed in them with our money.
The only way that I know of, non violent way anyways, that we can wrest control back from them is to deny them the money from our paychecks. If we deny the government the ability to withhold money from our paychecks for 3 -6 months united as one for a common goal we will certainly get their attention. The government cannot operate without taking money out of our paychecks since they continue to run in the red right now. If we shut them off for a number of months by calling a general strike we can take control back of our government without firing a shot, without waiting for elections and we can then demand that they quit all of the deficit spending and bring all of the spending under control.
This would be my solution.

[givesflack]

Tea bag Mike,
You may think for yourself but not very clearly. Sometime you have to read something besides the tv guide and listen to Rush "the Phil Gramm" Limbaugh to get reality straight. The crisis is because of Gramm-Leach-Bliley. Deregulation then,1999, started crisis, 2007, and the markets crashed, 2008. Bush was very helpful. And if you go back 40 years you will see that after every Republican administration lthere was in a big recession. This time, the Repus'es caused something bigger, bigger than a depression- more like a tsunami of economic transfer from the people to the banks. Anything that goes wrong from here will be all Repus'es fault all the time as the final step to a financial totalitarian take over of our country occurs. Who will you side with then?

[Genep34]

Please watch as the tea baggers become the hypocrites of the century. As they have roared about the TARP and the bad banks and why are we bailing out these crooks.

When the dems go to regulate these banks the tea baggers will start screaming to leave them alone. Only in America can this happen. In other countries they would be laughed off the stage.

[mike42nola]

Banks and every other industry have already been highly regulated. Over regulation starting with the CRA of 1977 was the beginning of the run up to the banking and housing market collapse.

[Bush-Rolled]

Man, that's some koolaid you're drinking, Mike!

[givesflack]

Tea bag Mike,
You may think for yourself but not very clearly. Sometime you have to read something besides the tv guide and listen to Rush "the Phil Gramm" Limbaugh to get reality straight. The crisis is because of Gramm-Leach-Bliley. Deregulation then,1999, started crisis, 2007, and the markets crashed, 2008. Bush was very helpful. And if you go back 40 years you will see that after every Republican administration lthere was in a big recession. This time, the Repus'es caused something bigger, bigger than a depression- more like a tsunami of economic transfer from the people to the banks. Anything that goes wrong from here will be all Repus'es fault all the time as the final step to a financial totalitarian take over of our country occurs. Who will you side with then?

[Pem3]

No I think the people will partially be as happy as they can that something is being done.

[stargazer13]

Banks

have stole enough from us

I want the whole lot investigated banks governments even our own !!

some body has burnt our nation down and I for one would like to Why ? How ? & Who ?

and who,s made to suffer gas field workers the car salesmen etc etc etc

this was done on purpose !! by those in power !! knowing full well that the average American would

would be the one that suffered .. and Banks they now get to buy our foreclosed home,s for 5 CENTS

ON THE DOLLAR !!!!!!!!!!!!!

[MarsAmbassador]

Henry Paulson should be in jail on charges of fraud and who knows what else. There should be a TON of financial people in jail for fraud. Selling investment bonds populated with known junk bonds and still portraying them as AAA rated securities is as fraudulent as it gets. The ratings agencies should all be arrested, too.

[betrayed1]

Fox news on tv now defending the lying by Paulson and Bernanke. (not the anchors, but the business guests, saying basically they lied for a good reason)

[dukesman2000]

Like we've only accounted for half of the 700 plus billion dollars.

[RonGallion]

Obama promise of transparency, you gotta love it. Clear as mud.

[Pem3]

Smokey one way mirrors are transparent halfway aren't they?

[stargazer13]

really that much ! I am surprised

we know that much !!

9 trillion is missing people !!

WHY ?

WHERE DID THAT MONEY GO ?

WHO WENT INTO OUR TREASERY AND PRINTED ALL THAT MONEY ????

and you of course are aware that we the people have to pay interest on this missing trillion,s of dollars

I don,t want to here another word about justice until this is figured out and we get our money back and send the perps to jail

[mike42nola]

There actually is over $100 trillion that is called unfunded liabilities that is basically money that congress has stolen from the Social Security Trust Fund, The Medicare and Medicaid Trust Funds that isn't there anymore an has already been paid in by taxpayers. The taxpayers pay into these funds thinking that the money is going to be there when you need it but it isn't because the money isn't truly dedicated to those funds and those purposes. No wonder why every new plan is viewed with suspicion. They can't keep their greedy hands off of the money for the old plans so they need to come up with new plans for the taxpayer to fund so they will have more money to steal.
Do you know why Congress was against President Bush's plan to let us manage a portion of our own Social Security Fund? It is because that money isn't there anymore and if this plan would have been approved and the taxpayers would have asked for their money the country would either have had to print more money which would devalue the dollar overnight or declare bankruptcy.

[Stockbroker38]

As a handsome 38-year-old stockbroker, I say all the instiutions are healthy. Pay no attention to the off-sheet $600 trillion in derivatives our biggest investment firms own. It's not like they might expect money for them in the future (LOL!).

Has anyone seen my brandy snifter? Or my bailout receipt?

[stargazer13]

that much money does not even exist in the whole wide world

learned about that when there was a hostile take over of Frito lay

frito lay called them on it good lawyer I tell you !!I my self never would have thought about it that way