~ A Not So Happy Anniversary for Involuntary Investors

Remember last October when Congress approved the Emergency Economic Stabilization Act and confiscated $700 billion of our tax dollars for a financial bailout? Back when many of us first became involuntary investors in Wall Street’s “too big to fail” financial institutions. Well, the Congressional Oversight Panel of the Senate Banking Committee, chaired by Chris Dodd, last week held a anniversary gathering of sorts called the EMERGENCY ECONOMIC STABILIZATION ACT: ONE YEAR LATER.

Since Neil Barofsky, Special Inspector General for the (TARP) Troubled Asset Relief Program and Elizabeth Warren, Chair of the Congressional Oversight Panel of the (TARP) Troubled Asset Relief Program were guest witnesses, it seemed a good time to get some answers to the $700 billion dollar questions of how well is TARP working and how stable has our economy become.

And, well, you might want to hold off on the champagne.

From SIG Neil Barofsky:

“I think we may be in a far more dangerous place today than we were a year ago,” he said.

As Ms. Warren points out in her testimony:

EESA [Emergency Economic Stabilization Act] listed five specific objectives for TARP: to restore financial stability, protect home values and family savings, promote jobs and economic growth, maximize returns to taxpayers, and provide public accountability.

Since EESA was enacted one year ago, the apprehension that pervaded this country has turned into something else: frustration and anger. Taxpayers have committed over $531 billion through TARP, and although there is no doubt that the financial system has begun to stabilize, families are still feeling the pain of rising unemployment, rampant foreclosures, higher bank fees, and limited access to credit.

Today’s fragile stability has come at an enormous cost to the American people. Taxpayers have a right to expect full clarity, full transparency, and full accountability in Treasury’s use of their money. They also have a right to know what has fundamentally changed to prevent this crisis from ever happening again….

From Mr. Barofsky testimony:

On Maximizing Returns to Taxpayers

The progress on meeting the goal of “maximiz[ing] overall returns to the taxpayer” is unclear. While several TARP recipients have repaid funds for what has widely been reported as a 17% profit, it is extremely unlikely that the taxpayer will see a full return on its TARP investment. For example, certain TARP programs, such as the mortgage modification program which is scheduled to use $50 billion of TARP funds, will yield no direct return, and for others, including the extraordinary assistance programs to AIG and the auto companies, full recovery is far from certain.

Similarly, Treasury’s original stated goal of increasing lending has not yet occurred, although, as SIGTARP’s recently issued audit on TARP recipients’ use of funds indicates, it is likely that lending from TARP recipients would have decreased far more in the absence of TARP funding.

On Protecting Home Values and Family Savings;
On Promoting Jobs and Economic Growth

…the goals of “preserving homeownership,” “promot[ing] jobs and economic growth” have not yet been met, and the ultimate success of meeting these policy goals will depend on programs that are just now reaching the implementation stage, such as the TARP’s mortgage modification program and the public-private investment funds. In the meantime, the risk of foreclosure continues to affect too many Americans; unemployment continues its rise to levels that Treasury has characterized as “unacceptable”; the so-called “toxic” assets that helped cause this crisis for the most part remain right where they were last fall – on the banks’ balance sheets; and it is becoming more and more clear that the commercial real estate market might be the next proverbial shoe to drop, threatening to increase the pressure on banks and small business alike yet again.

On Providing Public Accountability

“Treasury’s default position should always be to require more disclosure rather than less and to provide the investors in TARP — the American taxpayers — as much information about what is being done with their money as possible. …TARP largely remains a program in which taxpayers are not being told what most of the TARP recipients are doing with their money and will not be told the full details of how their money is being invested.”

More from Ms. Warren:

On Restoring Financial Stability

“The toxic assets remain on the books of the banks. The commercial real estate mortgages are a coming crisis. Small banks are continuing to fail. We were talking a year ago about too big to fail. We are now facing an industry that’s more concentrated than it was a year ago and too big to fail is up on us now in a much larger sense.”

“Until we get down to dirt, to something that’s solid, that we can put our feet on, our financial institutions are standing in a secure place, we can’t rebuild and know that we are safely past this crisis”

“The question about how we’re going to get these toxic assets out of here at a time when the real estate mortgage market is still in trouble and the commercial real estate mortgage market may be getting into more and more trouble – I’m not hearing the plan.”

Then again, the way our government has been working of late, maybe it is a good thing if they don’t have a plan for this.

[Also posted at No Quarter]


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