[R-G] [BillTottenWeblog] Thievery Under the TARP

[Bill Totten]

by Robert Scheer

Truthdig (April 22 2009)


We are being robbed big-time, but you can't say we haven't been warned.
Not after the release Tuesday of a scathing report by the Treasury
Department's special inspector general, who charged that the aptly named
Troubled Asset Relief Program is rife with mismanagement and potential
for fraud. The IG's office already has opened twenty criminal fraud
investigations into the $700 billion program, which is now well on its
way to a $3 trillion obligation, and the IG predicts many more are coming.

Special Inspector General Neil M Barofsky charged that the TARP program
from its inception was designed to trust the Wall Street recipients of
the bailout funds to act responsibly on their own, without
accountability to the government that gave them the money.

He pointed to the example of AIG, which has acted as a conduit of funds
to the banks it had insured without being required to tell the
government what it is doing: "Failure to impose this requirement with
respect to the injection of yet another $30 billion into AIG would not
only be a failure of oversight, but could call into question the
credibility of the government's efforts".

AIG is just one example in a bailout that has left the financial
conglomerates unsupervised as they spend taxpayer money in what the
report termed a government program of "unprecedented scope, scale and
complexity", putting the public and the Treasury Department in the dark
as to how the money is being used by the very tycoons who got us into
this mess. "The American people have a right to know how their tax
dollars are being used", Barofsky wrote in the report, which sharply
criticized the government for failing to hold financial institutions
accountable.

For all of its criticism of the original program, designed by the Bush
administration, the report was equally severe in denouncing the Obama
administration's plan to partner with hedge funds and other private
capital groups to buy up the "toxic" holdings of the banks. Charging
that the plan carries "significant fraud risks", the inspector general's
report pointed out that almost all of the risk in this new
trillion-dollar plan is being borne by the taxpayers. The so-called
private investors would be able to put up money they borrowed from the
Fed through "nonrecourse" loans, meaning if the toxic assets purchased
prove too toxic and the scheme failed, the private investors could just
walk away without repaying the Fed for those loans.

The reason those loans may prove even more toxic than expected and the
price paid by this government-underwritten partnership far too high is
that the government is purchasing the most suspect of the banks'
mortgage packages. In addition, the plan is to accept at face value the
evaluation of those packages by the very same credit-rating firms whose
absurdly wrong estimates of the dollar worth of these securities helped
create the problem that now haunts the world's economy. "Arguably, the
wholesale failure of the credit rating agencies to rate adequately such
securities is at the heart of the securitization market collapse, if not
the primary cause of the current credit crisis", the report found.

As with the entire banking bailout, the new plan of Obama's treasury
secretary, Timothy Geithner, is likely to enrich the very folks who
impoverished the rest of us, as the report notes: "The significant
government-financed leverage presents a great incentive for collusion
between the buyer and seller of the asset, or the buyer and other
buyers, whereby, once again, the taxpayer takes a significant loss while
others profit".

At the heart of this potentially massive fraud was the original decision
of Henry Paulson, President Bush's treasury secretary and a former
Goldman Sachs chairman, to not require the recipients of the bailout,
such as his old firm, to account for how the money was spent.
Unfortunately, President Obama's administration continued that practice.

The only difference is that the amount of public money being put at risk
is now far greater, and the hedge funds, which are totally unregulated,
have been brought in as the central players. One of the largest of those
hedge funds, D E Shaw, carried Obama's top economic adviser, Lawrence
Summers, on its payroll to the tune of $5.2 million last year. He may
have reason to trust these secretive enterprises that operate beyond the
law, but the public does not.

_____

A Progressive Journal of News and Opinion. Editor, Robert Scheer.
Publisher, Zuade Kaufman.

Copyright (c) 2009 Truthdig, LLC. All rights reserved.

http://www.truthdig.com/report/item/20090422_thievery_under_the_tarp/


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