Neil Barofsky: Bailout Helped But At A Great Cost

WASHINGTON — The man who watches over the $700 billion in government money given to banks and other institutions to avert a financial collapse said Wednesday he thinks it's too early to say how much will be repaid to the taxpayers.

Just as the Obama administration prepares to announce a new TARP-like program for small community banks, Inspector General Neil Barofsky said he believes that "it's unrealistic to think we're going to get all of that money back."

The Treasury Department has spent more than $454 billion through TARP programs. Forty-seven recipients have paid back nearly $73 billion. That means more than $317 billion remains outstanding with the program set to expire Dec. 31.

Later Wednesday, President Barack Obama is expected to announce the community bank assistance effort. The American Bankers' Association has asked for $5 billion in rescue-fund money to help small banks extend more loans.

Asked on a nationally broadcast interview how he would grade the program, Barofsky said, "I think right now it would have to be an incomplete." Barofsky did say the program was successful in "pulling us back" from a financial collapse, however. At the same time, he told CBS's "The Early Show" that the resumption of huge executive bonus payments by some of the same institutions that benefited from the government bailout has sown distrust and cynicism among many taxpayers.

The mixed and blunt assessment came as the Obama administration takes steps to wind down and refocus the Wall Street rescue effort. Barofsky's conclusions were in a quarterly report scheduled for release later Wednesday.

An administration official said Tuesday that the bailout effort's signature initiative – a capital purchase program that aimed to inject $218 billion into banks – would effectively wrap up at the end of the year.

But even as the administration aimed to refocus the massive Troubled Asset Relief Program on small businesses and homeowners, Barofsky said in his report that the effort to save the nation's financial sector came at great cost to taxpayers, to the integrity of the financial system and to the public's perception of the federal government.

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"Despite the aspects of TARP that could reasonably be viewed as a substantial success," he wrote, "Treasury's actions in this regard have contributed to damage the credibility of the program and of the government itself, and the anger, cynicism and distrust created must be chalked up as one of the substantial, albeit unnecessary, costs of TARP."

Barofsky said public suspicion was fed by Treasury's decision not to require banks to report how they used their rescue money and its "less-than-accurate" statements describing the financial condition of nine large banks that benefited from large infusions of aid. The TARP program began under the administration of President George W. Bush and has expanded under Obama.

The administration official, speaking on the condition of anonymity because the details had not yet been made public, said the Treasury Department plans to cap two TARP programs at levels below initial projections. A program designed to rid big banks of their bad assets will spend $30 billion instead of $75 billion. Another that supports a Federal Reserve effort to ease bank credit will top off at $30 billion instead of $80 billion. A new initiative aimed at banks – the Capital Assistance Program – had no applicants and will also end, the official said.

The overall TARP program has come under criticism in Congress from across the political spectrum. Liberals maintain the program needs to shift its focus from big financial firms to small businesses and homeowners. Conservatives insist the program has been an unnecessary intrusion into the financial sector and should end swiftly.

In his report, Barofsky credited the Federal Reserve and the Treasury Department for adopting some of his accountability recommendations over the past several months. But he said several of his agency's proposals for greater transparency have gone unheeded.

The report describes a patchwork of initiatives carried out under the TARP umbrella – some designed to assist the biggest of Wall Street institutions, others to bail out the struggling auto industry and yet others to help homeowners struggling to stave off foreclosure.

Even within those programs, Barofsky found inconsistent attempts to hold recipients of the bailout accountable to taxpayers.

Comments

[BocaMom]

This is like the Nixon days? What a bunch of crooks!

[sonofsamphm1c]

"Insurance without reserves is fraud.

Yes or no? ..." - Research

If the statutes that apply in the jurisdiction require insurance companies to have a reserve, then not having a reserve would be a violation of statute.

Name the statute that required CDS sellers to establish a reserve.

While you're at it, are there significant differences between a CDS and insurance? Surely your research has answered this question.

Yes or no?

[research]

Fraud does not require any laws be broken, nor regulations violated, it only requires the intent to take money by trickery or as part of a scam.

So you admit the CDS is insurance without reserve.

And that is A Fraud, a well known scam, Ponzi Schemes are Fraud, no matter what the law or regulations say. Like torture is a war crime no matter what laws or regulations say you can.

The Phil Gram bill deceptively created CDS outside of the obviously required insurance laws.

That adds Conspiracy to the fraud charges.

RICO should come into play also.

[sonofsamphm1c]

There are many differences between a CDS and an insurance policy, so no, a CDS is not insurance without a reserve. It's a CDS.

If you had done your research, you would already know that.

When a reporter, or a website, tries to explain what a CDS is by saying it's like insurance, they are just trying to help you get the drift. You're not done there. Lots more work to do.

[research]

It's insurance, we all know it. It's a bet on some assets, or even on an abstract like interest rates, the Multiple people can take out for a small monthly fee to AIG. You know this.

Your lies will not hold.

CDS IS Insurance, anyone who researches it knows that.

CDS had to get a SPECIFIC exemption from insurance laws.

CDS are a conspiracy to commit the largest fraud in history.

And you are defending it.

[jsloan]

wow aint that the truth
"it's unrealistic to think we're going to get all of that money back."

he won't have his job for long ;-)

[greihing]

"Treasury's decision not to require banks to report how they used their rescue money...."

Neil Barofsky was on "The Newshour" Wednesday and said that he has been trying to get the Treasury to do this since he has been appointed this post. To me as a taxpayer, this is a reasonable request. Besides I would like to see also where the banks are spending my money.

It is time we put some pressure on Treasury to start requiring banks to show a full accounting for the money they receive from taxpayers.

[sonofsamphm1c]

Say your mother-in-law loans you $500 bucks. You put the $500 bucks in your checking account. Your monthly payroll check is $3,000. You put that in your checking account. Four months later you have deposited $12,500, and you've written checks. At the end of the four months you have a balance of $975.

Then your mother-in-law demands you tell her to the penny how you spent her $500.

In other words, it is a perfectly unreasonable, mother-in-law-type request. It is asking for executives to sign their names to numbers that cannot be audited or known.

What the executives have told Barofsky is they think they spent it on continuing operations (rent, payroll, etc.), acquisitions (often at the behest of the FDIC), debt reduction, defending lending levels (which were under grave assault due to the contracting economy), and shoring up capital. These are all perfectly reasonable expenditures. They've told him that. Did he mention that last night, or did he persist in stoking the great lie that this money is somehow missing?

[research]

who do you think you are fooling?

I have a record of every cent I spend,

are you complicit or just a paid tool. of are you one of the true believers?

Insurance without reserves is fraud.

Yes or no?

[rbryanh]

Excellent. Anger, cynicism, and distrust are all sane reactions to the reality of the situation.

Unfortunately, they're all just that: reactions. Throwing our hands in the air accomplishes nothing so long as it's nothing more than a gesture we make before returning to sitting on them.

[sonofsamphm1c]

You could read the Barofsky reports and figure out a great deal of this is a tempest in a teapot.

He is saying pointblank that TARP rescued the American economy. Not just the banks, but the American economy.

[TJCole]

Of course they're quiet and secretive their crooks..an­d should be arrested..­!

[truthmatterstoo]

Just watched The PBS Frontline Special, hope you have a pot to vomit in after watching.

[research]

agreed, it was heart breaking and enlightening.

[jws2346]

This may be showing I have a hard time understanding sometimes, but here goes
I read this article and I read the one in the Washington Post. I'm still having a hard time trying to figure out just what this dude Barfo what's his face is trying to say. Are the taxpayers suppose to just eat the TARP money and expect a zero return ? How come these Wall Street firms are making such large profits ? How come these Wall Street firms are giving out such large bonuses. Are the taxpayers suppose to finance another bailout for the smaller banks? Are they going to use some of the already allocated TARP money to help foreclosed homeowners? Is Wall Street going to help Main Street ? Good grief, who's side is this dude on?

[sonofsamphm1c]

The TARP mortgage program is unlikely to be paid back. Extending a helping hand to deadbeats is a risky. My hunch is the American taxpayer will eat that. The TARP loaned to a small business named GM, to save jobs, is unlikely to be paid back in full. Small businesses have a default rate. Do you think it is good or bad? The American taxpayer will probably have to eat that.

The TARP loaned to banks is likely to be paid back in full plus interest, and they have guaranteed that with sector-wide cosign.

[research]

Bansters bought and sold investment insurance without reserves.

That's Fraud.

The Bonuses are the Game.

The Banksters take the Bonuses out of thier betting funds,

so they can have empty coffers when they come begging, demanding, extorting another bailout.

We have handed these criminals 2/3 of the worlds GDP to allocate as they wish.

Banksters Hate main street and would rather make bets guaranteed by TARP Banker bailouts fund from the taxpayers.

TARP is not a mortgage rescue fund.

Now you are just lying.

[knowhelpnow]

These people who just play with the money on the stock market, buying and selling so many times a day should be stopped. This is just causing unknown or unreal ups and downs in the market. We need real firm policy on the exchanges including the commodity markets, the way it is no one knows if it is just playing with the market and no real price can be found.
How did all of this stuff start it's like a carnival in these exchanges and we can't trust any of it at this time, as the market goes up hundreds of dollars one day and down hundreds of dollars the next day this is unreal and laws should be made to stop this practice.
How did the market go up to over $10,000 from less then $7,000 in months? How did the market even reach the highs it has in just a few decades from around $3,000 I really can't believe these are honest numbers. The market place has become a gambling out fit that has drawn in huge amounts of people who have no idea what runs the market, you might as well go to Vegas as put your trust in these markets today.

[truthmatterstoo]

not sure the terminology, but they are actually trading with a nanosecond trading computers.­...We'll never have a chance, but did we ever? Nope....as I said before Madoff2.0 more like Madoff9000­0.0

[hischagal]

Handing out 700 billion dollars with no oversight is so crazy, I don't even know how to begin.

[vanax]

Hischagal, not oversight; Oversight is after the theft has been committed and authorities have to slog through a bureaucracy to make the thief pay or get punished while the thief has lots of time to hire lawyers to thwart the oversighter. Supervision, it's SUPERVISION, as in a gov. watchdog watching over the shoulder (yes, over the shoulder) of the potential thief, that's effective. By this method, the theft can be prevented. Prevention is the key.

And, by the way, they better pay it all back; It's our money. I want it to go toward punishing Wall St. thieves.

[hischagal]

Right on!

[hischagal]

Collection of TARP money should take place immediately for those who have not repaid their loans by December 31 and for those who flatly refuse to extend credit to anyone. This is the reason they got the TARP money in the first place. If these banks who took the money are not extending credit to those whose homes were foreclosed on, they need to pay the entire amount back including a heavy penalty for fraud and misrepresenting their company's need for the bail -out.

[pontesisto]

If you would like to take a stand and demand that the Federal Reserve be audited please join our voting bloc here:
http://www.votingbloc.org/Audit_Fed_Bloc.php

[Nor Cal Mom]

Don't get me wrong...I am glad for someone to be saying it, but it is sad that gov't officials can't see it because it is obvious.

[Nor Cal Mom]

It's amazing that these things things that seem self evident to the rest of us have to be pointed out by 'watchdogs'.

[FirstShirt]

And yet we have people clamoring for government run health care. Amazing.

[knowhelpnow]

All the financial aid given to any corporation should be paid back with interest or go bankrupt so the government can sell off the assets and restore the money back into the government funds, this includes all the money that the Federal Reserve gave to these institution behind closed doors and the tax cuts given to them where the goverment (us) bears the burden. I also believe that all these corporations should be investigate and people who were responcible for this crisis be put on trial and if found guilty pay huge fines and serve jail time.
I personnely will transfer all my funds into my credit union where I believe they will be safer, where they makes loans after they do their homework, so they know that they can pay the loan back, They are regulated and I advise everyone to join one.
These big corporations who took the taxpayers money and are making hughe profits now, but don't want any reforms put on them is crazy they took us to the brink, and we should know that there has to be firm finacial policies put in place so this will never happen again.
No company should be to big to fail.

[sposton]

There is a lot of criminals with millions and billions in their pockets.