Lawmakers question how TARP money was spent

Nearly a year after the unprecedented government bailout of major banks, critics are still questioning where the money went and how it was used. Some lawmakers want Congress to do more to keep track of the taxpayer investment.

Story by Manuel Quinones, Capitol News Connection

It was October of last year when Wall Street giant Lehman Brothers collapsed and many experts were predicting financial panic. That’s why Congress and President Bush pushed for the Troubled Asset Relief Program or T.A.R.P. — a massive $700 billion boost for the financial industry.

“I believe we did the right thing,” says Sen. Chris Dodd (D-CT). “I think had we not acted a year ago, during those two weeks, this would be a far more difficult problem.”

Dodd, the Senate Banking Committee chairman, admits it was a very tough vote but says Congress needed to act to stave off disaster. But almost a year after passage, critics wonder if expedited government action led to a big waste of taxpayer dollars and help for banks that didn’t deserve it.

Sen. Robert Bennett (R-UT) is a Banking Committee member and says the government should have kept a closer eye on the money. That’s one reason some lawmakers voted earlier this year to block the second half of T.A.R.P. funds from being released.

“I voted for the first [portion] of T.A.R.P. and still believe that was the right vote,” Bennett said. “I did not vote for the second [portion] of T.A.R.P. because I felt there was not enough transparency and accountability and I am still of that second view.”

A new article in “Vanity Fair” magazine blasts the T.A.R.P. program for not properly tracking how banks used the government help they received. Plus, some of the banks did not significantly boost lending even though that was one of the program’s stated goals. House Democratic leader Rep. Steny Hoyer (MD) says it’s a continuing problem.

“I have a concern that I think is shared by probably everybody in Congress that we have not seen the level of lending be what we hoped it would be,” Hoyer said. “And as a result the economy has not expanded or created jobs at the rate we hoped for.”

House Financial Services Committee Chairman Rep. Barney Frank (D-MA) knows T.A.R.P. didn’t exactly work as it should have. “Yes I do think there should have been more pressure at first to increase lending and we still have to do that.”

Critics say Congress has to do much more than that in monitoring the program. Even though T.A.R.P. has oversight from the Congressional Oversight Panel, an inspector general and a board made up of high government officials, it’s been hard to keep track of the money.

“We know exactly where it went and we know how the institutions receiving it are performing,” Frank says.

Frank knows which institutions received money but officials don’t know exactly how the companies are using all of it. Rep. Jeff Flake (R-AZ) says he wants to know more.

“We know that it was given to the banks and some of the banks have used it to merge with other banks, or acquire other banks,” Flake said. “Some tell us they used it to increase lending. Some are rapidly paying it back, some are not. There is some information out there but I think more is required.”

University of Maryland business professor Peter Morici doesn’t defend everything about the T.A.R.P. program. But he doesn’t see a problem with officials not knowing exactly how the banks and other institutions used taxpayer dollars.

“That does not mean it was abused. It means the person that complains about that does not understand accounting,” Morici said.

Morici argues it’s hard if not impossible to track the money. “Once you put money into the balance sheet of a bank, it can be used for any purpose. No particular item on an asset corresponds to any particular liability.”

“It’s hard to get exactly where the money is because it’s fungible,” said Chairman Frank, echoing Professor Morici’s argument.

Some bailed-out banks are accused of questionable practices. Bank of America, for example, reportedly threw an expensive Super Bowl event after getting government help. Executive compensation has been a point of contention. And the “Vanity Fair” article also questions the wisdom of using government money on financial institutions with suspect lending practices and some that didn’t need it. Morici says former Treasury Secretary Henry Paulson had a reason for including healthier companies.

“Paulson made it clear that he wanted all the banks, all the major banks to take T.A.R.P. money, because if they didn’t, those he gave to there would be a stigma and there could be a run,” Morici said. “At that point we were not clear that folks like Bank of America and Citigroup were in so much trouble.”

Supporters of T.A.R.P. say the government has increased oversight since last October. Not only that, defenders like Hoyer point out how taxpayers are starting to see the fruits of their investments.

“We are now getting T.A.R.P. funds repaid and, at this point in time, we made a profit,” Hoyer said.

Dodd says the money is coming back to taxpayers faster than many expected. “We are getting a pretty good rate of return, about 18% or more coming back. Some we probably will not get back, others we will.”

T.A.R.P. started off as a plan to rid financial institutions of troubled assets that were holding them down. But it’s grown to include government investments in companies like General Motors and Chrysler. And even supporters agree there is still much uncertainty about the results.

Created by Bureau Chief and Executive Producer Melinda Wittstock, Capitol News Connection from PRI provides insightful, localized coverage of participating stations’ congressional delegations.

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