Feb 06 2009

TARP Oversight Hearing


"Thank you, Mr. Chairman.

“We are here this morning to examine how the Treasury’s Troubled Asset Relief Program, or TARP, is working.  TARP was sold to Congress and the American people with great urgency as the sure cure for our ailing financial system.  Last September, when Secretary Paulson and Chairman Bernanke came to us to ask for TARP authority, they urged us to act with all deliberate speed.  We were warned that, if we did not give Treasury $700 billion immediately, the financial system would collapse.  There was no time for thoughtful deliberation – no time to examine the origin of the crisis – no time to discuss whether TARP actually would solve the problems we had no time to examine. 

“Secretary Paulson and Chairman Bernanke assured us that the TARP was the answer to those problems.  As described, TARP would remove illiquid assets from bank balance sheets, restart the flow of private capital into the hands of consumers and businesses, and inspire confidence in investors.  We were promised a methodical and transparent approach.  I wasn’t convinced and I opposed the bill.  I voted against the TARP because Treasury’s warnings and promises seemed calculated to induce panic rather than to ensure proper stewardship of taxpayer dollars.  I recognize that we face tremendous challenges.  Solutions crafted in haste, however, rarely are effective and, even worse, can be counterproductive.

“Four months have elapsed since the TARP legislation was passed.  Americans have a right to know where their money went, and whether it’s working.  Illiquid assets remain on bank balance sheets.  Private capital is sitting on the sidelines and institutions of all sorts are looking at the federal government as the lender of first resort.  Investor confidence remains dismal.  Deep economic problems persist even though Treasury has handed out $350 billion of taxpayer money and is working its way through the second $350 billion installment.  These outcomes are not exactly consistent with the promises we heard last fall. 

“Not only have the promised results eluded us, but TARP money has been used in a haphazard, opaque, and unanticipated manner.  Treasury, when it came to Congress last fall, talked about purchasing troubled assets through reverse auctions.  That plan – which had never been fleshed out with practical details – was abandoned within two weeks of the legislation’s passage.  Instead, Treasury injected capital into purportedly healthy banks under the Capital Purchase Program.  Less than a month later, additional assistance was announced for one of the same banks under a new TARP program – the Targeted Investment Program.  AIG got help through yet another TARP program, the Systemically Significant Failing Institutions Program.  After Congress decided not to give taxpayer money to the auto companies, Treasury set up a program especially for the auto sector under TARP.  Each program has eligibility criteria, but Treasury seems willing to create a new program for entities that fail to meet those criteria.  In a troubled market that craves predictability, this ad hoc approach is particularly harmful. 

“In addition, this disorderly approach makes it much more difficult for our witnesses, this Committee, and others to hold Treasury accountable for the choices it has made under the TARP.  Shifting criteria for the receipt of TARP money make it easier for Treasury and the bank regulators to pick winners and losers without ever having to explain their choices.  Why is it, for example, that Citigroup, one of the nine healthy banks selected to be the first participants in the Capital Purchase Program, needed a second installment of TARP funds one month later? 
Oddly, Treasury announced the outlines of the program under which the second $20 billion investment was made in January, after Treasury had already invested the money.  Similarly, Bank of America, another recipient of aid under the healthy bank program in October, was back for another $20 billion last month. 

“Perhaps the decisions by Treasury, working with the Federal Reserve, to classify Citibank and Bank of America as healthy institutions in October ought to be reviewed.  Treasury has not yet taken the time, in GAO’s words, ‘to clearly articulate and communicate a vision for TARP.’  But then, why should Treasury set forth a strategic plan if Congress is willing to hand over hundreds of billions of dollars without regard to whether the first installment has had the desired effect? 

“All of the witnesses here today have expressed similar concerns about the undisciplined and opaque manner in which the TARP has been administered.  The GAO has commented on TARP’s unclear strategic vision.  Mr. Barofsky has noted that the manner in which TARP money has been used ‘remains almost entirely opaque.’  The Congressional Oversight Panel has also commented on the confusion over the purpose and effects of the TARP.  I look forward to hearing about all of these concerns this morning.

“Thank you, Mr. Chairman."