VOL. 123 | NO. 237 | Thursday, December 4, 2008
Auditors Fault Treasury Policing of Bailout Funds
By JIM KUHNHENN | Associated Press Writer
WASHINGTON (AP) – Lawmakers want the U.S. Treasury Department to insist that banking institutions sharing in the $700 billion bailout comply with limits Congress imposed on executive salaries and use the money for its intended purposes.
In the first comprehensive review of the rescue package, the Government Accountability Office said Tuesday that the Treasury Department has no mechanisms to ensure that banking institutions limit their top executives’ pay and comply with other restrictions.
“The GAO’s discouraging report makes clear that the Treasury Department’s implementation of the (rescue plan) is insufficiently transparent and is not accountable to American taxpayers,” said House Speaker Nancy Pelosi, D-Calif.
The auditors acknowledged that the program, created Oct. 3 to help stabilize a rapidly faltering banking system, was fewer than 60 days old and has been adjusting to an evolving mission.
But auditors recommended that Treasury work with government bank regulators to determine whether the activities of financial institutions that receive the money are meeting restrictions on executive pay, dividend payments and repurchasing of shares.
“Treasury also has no policies and procedures in place for ensuring that the institutions are complying with these requirements or that they are using the capital investments in a manner that helps meet the purposes of the act,” auditors said.
In a response to the GAO, Neel Kashkari, who heads the department’s Office of Financial Stability, said the agency was developing its own compliance program and indicated that it disagreed with the need to work with regulators.
House Financial Services Committee chairman Barney Frank said Treasury’s response comes “very close to telling the institutions that they will be free to use the funds as they wish.”
“The bad news was confirmation by the GAO in its first report about the program that Treasury has no way to measure whether taxpayer funds invested in banks are being used in accordance with the purpose of the law to increase lending,” Frank said. “The much worse news is Treasury’s response that it does not even have the intention of doing so.”
The GAO is one of three watchdogs that Congress has assigned to monitor the extraordinary $700 billion financial rescue package, known as the Troubled Asset Relief Program, or TARP. A congressional oversight panel is scheduled to issue its report Dec. 10. In addition, Congress created an inspector general’s office to oversee the program, but the confirmation of veteran federal prosecutor Neil M. Barofsky to the post has been blocked in the Senate by a senator who remains anonymous under Senate practice.
“This report proves the immediate need for oversight of the taxpayer dollars being expended right now as part of TARP,” Senate Finance Committee Chairman Max Baucus, D-Mont., said in a statement. “Because of one senator’s anonymous block on this nomination, three weeks have been lost — a key element of the TARP oversight program is not in place.”
Republican Sen. Jim Bunning of Kentucky, a member of the Senate Banking Committee who opposed the bailout bill, has said he had “serious concerns” with Barofsky’s nomination,
though he has praised his experience. Bunning spokesman Mike Reynard would not comment on whether Bunning had placed the hold.
The audit came on the same day Detroit automakers renewed their plea for a rescue package with promises to dramatically restructure their operations. Noting that Congress had insisted on those conditions, Pelosi said financial institutions should be asked to do no less.
“The lack of any requirement by the administration on how financial institutions use these capital infusions is in clear contrast to Congress requiring detailed plans for long-term viability from the domestic auto companies,” Pelosi said.
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