TARP

I know, I know. The last thing readers want to hear about right now is more doom-and-gloom prognostication about the economy. But I can’t resist.

Last week brought several pieces of bad news on the financial front which, really, is no different than the preceding weeks. I point them out not because they were the most distasteful or gluttonous news items of the bunch (oh, so much to choose from!) but rather because they highlight serious structural flaws in our regulatory oversight of financial actors. [click to continue...]

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The Man on the Street

Sam, “The Man on the Street” shares his views on the current debate about executive pay for financial institutions receiving Federal bailout money.

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So, have you been wondering lately where all those taxpayer dollars involved in the Treasury’s brilliantly contrived “bailout” program are going? Lately, we – yes, us taxpayers – have been getting a few clues, and no thanks to officials at the Treasury who have written the actual checks. Press reports have shed some light on how companies are spending these “rescue” funds.

Interior decorating. Check.
Bad acquisitions. Check.
Exhorbitant executive bonuses. Check.
Lobbying. Uh, well, yeah…

The financial service sector contributed nearly $142 million to political campaigns, third-most among all industries, according to the Center for Responsive Politics’ OpenSecrets.org Web site (In case you’re wondering, 56% went to Democrats, 43% to Republicans); $131 million of this sum came from individuals. That’s about $130 million more than they would have contributed without bonus money. Apparently these lobbying expenditures last year have paid off. Clearly these financial companies have gotten what they paid for and much, much more.  Thanks a bunch Mr. Paulson.

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Yesterday, the Congressional Oversight Panel (COP) released its second monthly report on the expenditure of Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA). The report documents the efforts to get answers to the questions posed in the Panel’s first report, and details both the answers received from Treasury, and the many questions that remain un-addressed or un-answered.

“Hullo Houston, we’ve got a problem.”

As was noted in the report, “[b]ecause the questions we asked one month ago are important as ever, in this second report we lay out exactly what questions have been answered, what haven’t been answered and why these questions are important,” said Elizabeth Warren, the Chair of the Oversight Panel. “The American people have a right to know how their taxpayer dollars are being used, and so far, they have not gotten the transparency and accountability they deserve.”

Apparently the Treasury Department does not see this as a problem.

TARP and the Congressional Oversight Panel

On October 3, 2008, Congress provided the U.S. Treasury with the authority to spend $700 billion to stabilize the U.S. economy. Congress created the Office of Financial Stabilization (OFS) within Treasury to implement a Troubled Asset Relief Program (TARP). At the same time, Congress created a Congressional Oversight Panel (COP) to “review the current state of financial markets and the regulatory system.”

COP is empowered to hold hearings, review official data, and write reports on actions taken by Treasury and financial institutions and their effect on the economy. Through their reports to Congress and American taxpayers, the COP is mandated to:

• Oversee Treasury’s actions
• Assess the impact of spending to stabilize the economy
• Evaluate market transparency,
• Ensure effective foreclosure mitigation efforts
• And guarantee that Treasury’s actions are in the best interest of the American people.

Lastly, Congress has instructed COP to produce a special report on regulatory reform that will analyze “the current state of the regulatory system and its effectiveness at overseeing the participants in the financial system and protecting consumers.”

So far, so good.

The Panel’s Second Report

However, in today’s report we now find that the Treasury Department is choosing to ignore the Panel’s queries into how it is managing the distribution of more than $700 billion in taxpayer money. I won’t go into great detail about all of the questions that the Treasury Department has so far failed to answer. However, it’s worth noting some of the more critical questions that we all want an answer to but have received no response from Treasury. As the report notes:

The Panel still does not know what the banks are doing with taxpayer money.  Treasury places substantial emphasis in its December 30 letter on the importance of restoring confidence in the marketplace.  So long as investors and customers are uncertain about how taxpayer funds are being used, they question both the health and the sound management of all financial institutions.  The recent refusal of certain private financial institutions to provide any accounting of how they are using taxpayer money undermines public confidence.

For Treasury to advance funds to these institutions without requiring more transparency further erodes the very confidence Treasury seeks to restore.  Finally, the recent loans extended by Treasury to the auto industry, with their detailed conditions affecting every aspect of the management of those businesses, highlights the absence of any such conditions in the vast majority of TARP transactions.  EESA does not require recipients of TARP funds to make reports on the use of funds.  However, it is within Treasury’s authority to make such reports a condition of receiving funding, to establish benchmarks for TARP recipient conduct, or to have formal procedures for voluntary reporting by TARP recipient institutions or formal guidelines on the use of funds.  The adoption of any one of these options would further the purposes of helping build and restore the confidence of taxpayers, investors, and policy makers.

On a practical level, where did the $100 billion or so given to AIG and its creditors go? So far, the Treasury Department isn’t saying. What is Treasury’s vision of the problem? So far, no word. What does Treasury think the central causes of the financial crisis are and how does its overall strategy for using its authority and taxpayer funds address those causes? Mums the word.  Is Treasury seeking to use TARP money to shape the future of the American financial system, and if so, how? Apparently, this is none of our taxpaying business.

The full report can be found here. Be forewarned, this report is not for the faint of heart.

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Jim DeMint (S-SC), David Vitter (R-LA) and Mitch McConnell, along with a slew of other Republican senators have begun their pitched battle attacking American auto workers this week by opposing any bailout that doesn’t include slashing unionized autoworkers pay to that of non-union autoworkers in the south. Effectively killing a Congressional bailout of the Big Three automakers, they focused their invective on the high pay received by workers represented by the UAW.

Notwithstanding the question of whether the U.S. automakers should receive such help from Congress, attacking American workers as the root cause of the industry woes speaks volumes about what we already know about these Senators, who are hostile to the rights of working Americans while bedding with the worst elements of industry.

Extending the Senators’ logic a bit, should all American’s wages be reset to some other standard? Perhaps Congress should take it upon itself to set UPS worker wages to Fedex standards. Perhaps Toyota workers employed in Alabama receiving $40 an hour have their wages set to those workers at the VW assembly plant in Puebla, Mexico. The comparisons hare endless here but what is important is that, when it comes to screwing working people, these Republicans regulatory ambitions know no bounds.

On the other hand, if it is to become Congress’ role to regulate wages, then perhaps we can start to evaluate executive pay in a similar manner. Something modest is in order here. I like linking U.S. executives wages to that of similar executives in, say, Great Britain or France.

Breaking out of that fantasy, the reality here is that, as was noted in the LA Times and elsewhere, the Republicans’ primary aim is not to consider the merits of the financial bailout of the auto industry so much as to stick it to the UAW, sort of a counter punch to the upcoming effort by organized labor to enact the Employee Free Choice Act. In addition, any blow back that these Senators might receive from their fiscally conservative supporters (I’m speaking about their financial supporters not the electorate), is avoided by tossing this monkey wrench into the process. As we are seeing, President Bush is now talking about deferring funds from the financial industry bailout (TARP), allowing the Republican senators to spoil the deal while avoiding the consequences resulting from a catastrophic failure of the industry.

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