http://abcnews.go.com/print?id=9702600 TARP: Government Bailout Failed in Many Ways, Says Watchdog Special Inspector General Says Unemployment, Foreclosures Still Too High By MATTHEW JAFFE WASHINGTON, Jan. 31, 2010 — The government's controversial $700 billion bailout program has failed to achieve many of its objectives, a watchdog tells Congress in a new report out Saturday night. Neil Barofsky, the special inspector general for the Troubled Asset Relief Program (TARP), says in the report that the financial system is stronger today than in the fall of 2008, but he concludes, "Many of TARP's stated goals...have simply not been met." Consumers and businesses are still struggling to get loans, he says. Small businesses are still waiting for an aid program to start. Homeowners are still grappling with record levels of foreclosures. Unemployment is still 10 percent. A case in point, says Barofsky: the administration's housing aid program "has only permanently modified a small fraction of eligible mortgages." To date, only 66,000 homeowners have finalized better mortgage terms to help them avoid foreclosure; the administration's program was designed to help 3 to 4 million. Moreover, Barofsky cautions, the nation remains as vulnerable as ever to flaws in the financial system. "It is hard to see how any of the fundamental problems in the system have been addressed to date," he says. 'Too Big to Fail': Getting Bigger So-called too big to fail institutions are now "even larger" than before, the market is "more convinced than ever" that the government will bail out failing firms, Wall Street bonuses this year reveal "little fundamental change" in pay plans compared to past years, and federal efforts to support the housing market "risk reinflating that bubble," says Barofsky. Voicing concerns about federal aid to the housing sector, he adds, "The government has done more than simply support the mortgage market; in many ways it has become the mortgage market, with the taxpayer shouldering the risk that had once been borne by the private investor." Government Bailout: Unemployment, Foreclosures Still High On Capitol Hill, meanwhile, financial regulatory reform has been crawling along, overshadowed by the health care push and beaten back by industry lobbyists. "Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," the report warns. Despite the litany of problems cited with the program, Barofsky does highlight a number of TARP's achievements. "There are clear signs that aspects of the financial system are far more stable than they were at the height of the crisis in the fall of 2008," he says. "Many large banks have once again been able to raise funds in the capital markets and some institutions -- including some that appeared to be on the verge of collapse -- have recovered sufficiently to repay their TARP investments years earlier than most would have predicted." Due to these repayments and the sales of stock warrants received as part of the bailout, Barofsky echoes the administration's predictions about the program's cost, saying, "It now appears that the ultimate cost of TARP to the American taxpayer, while still substantial, might be significantly less than initially estimated." TARP Extended to October In a report last summer, Barofsky had forecast that the total federal government support from a slew of programs to prop up the financial system could potentially total a staggering $23.7 trillion. As of the end of last year, the Treasury Department had $368 billion in TARP funds available to distribute. Going forward, the department has said TARP extended early last month until Oc. 3, 2010 will focus on halting the rash of foreclosures, boosting lending to small businesses, and continuing to support the asset-backed securities markets. Troubled Assets Relief Program: a Report Card Earlier this month President Obama proposed a fee on approximately 50 banks with assets of $50 billion or more. It was described as an effort to raise at least $90 billion over the next decade and recoup possible losses from TARP. Barofsky, who issues quarterly reports to Congress, conducts audits and investigations, and has the power to issue subpoenas, notes that as of the end of last year, his office had 77 ongoing criminal and civil investigations. In the 16 months since TARP's enactment, Barofsky has released a series of scathing reports about the bailout. In a report last October he concluded that Treasury Secretary Timothy Geithner was "ultimately responsible" for AIG, the recipient of $182 billion in taxpayer aid, paying out $165 million in retention payments in early 2008. Barofsky also said in another report last October that the Treasury Department and the Federal Reserve had misled the American public and Congress in the days leading up to the bailout's enactment one year earlier. Treasury Department Response Asked for a response to Barofsky's report, the Treasury Department offered the following comment. "Over the past year, we have taken unprecedented steps to make this Treasury the most transparent in history -- with easily accessible information online of not only TARP, but also Recovery Act programs, and many more," said spokeswoman Meg Reilly. "We welcome [Barofsky's] attention and remain committed to working with all of the oversight bodies to maximize transparency for the American public." The watchdog's work last summer landed him in a dispute with Treasury over his probe into AIG, a dispute ultimately resolved last fall when the department revoked its request for a Justice Department ruling on Barofsky's independence. On Wednesday , Barofsky testified on Capitol Hill at a contentious hearing on AIG's controversial rescue by the government. Copyright © 2010 ABC News Internet Ventures
Damn republicans and their big government. I wish Bush wouldn't have pushed this through before he left office
I know it's tangential, but we really need to get ahold of this "too big to fail" issue in the financial sector. Reinstalling the part of Glass-Steagall where investment banking and commercial banking were separated would be a start. It's simply not fair that the commerical banks get to make risks with FDIC insured money. Limiting the size of commercial banks by deposits would be another. Don't do it by geography, because making banks reliant on small parts of the country opens up their balance sheet to local volatility. There will be the complaint that the investment banking houses won't be able to compete against the Euro and Asian combined banks, but that's poppycock. They'll just have to do the way they did before, by partnering with each other. When you become too big to fail, you can act more recklessly, because you know you'll be bailed out. Ironically, forcing smaller and larger numbers of financial institutions will help put some discipline back in the market. Of course, those changes also have to mean there will be NO MORE bailouts. When you die as a bank, you die.
The banks can have (more) limited liability if the amount of reserves they're required to keep around are sufficient to cover FDIC requirements. The "too big to fail" thing is B.S. If they fail, they fail. If the govt. makes people whole, according to what FDIC says they should receive, then it is irrelevant what happens to the banks if they make stupid decisions that cause them to fail. The bigger issue is the govt. mandating they make stupid decisions. In fact, isn't it odd that most of the preferred stock and bond holders of Freddie and Fannie were banks? When the govt. swooped in and nationalized those two, they wiped out the debts to those banks, making the situation worse.
I agree with this all around. Break up the bank types again. It is clearly asking for trouble, and we have seen the trouble it brings!
I can understand the "too big to fail" idea for financial institutions- especially those who have poor loans forced upon them by big government. But the idea of a regular business being too big to fail is idiotic. It's also no coincidence that while insurance companies right now are losing hundreds of millions of dollars they would never consider relief. But when a union company has recklessly allowed a hoplessly flawed retirement system to be set in place, THEN they are too big to fail... At least Obama is transparent about his allegiances to unions and away from the common people. But it is all so sad that the President and democrats have to so blatantly prejudiced against people and their livelihood. They really don't care at all and seem to enjoy making us all aware of that every day.
WTF are you talking about? Insurance companies got the bailouts. The only unions that got bailouts are car manufacturers (if you call that a union). They didn't get NEARLY as much money. The idea of regular business to big to fail is very true if you let it happen. Imagine if there was only one car manufacturer because they kept buying up their competition. If that only company suddenly had problems, EVERYONE who worked in car manufacturing would be out of jobs. Any industry where just one company corners the market is bad for EVERYONE except the CEOs in charge.
If I am not mistaken, only AIG did and it was for their financial sector. Am I wrong on this? If so, then I stand corrected.
