Obama and Co. have bungled the bailout (Jack Kelly)

Nice Job Jack Kelly!!

I Look Forward to Reading More of Your 

"Call It Like It Is Articles"

Sunday, October 31, 2010
By Jack Kelly, Pittsburgh Post-Gazette

Treasury Secretary Timothy Geithner is all that remains of President Barack Obama's original economic team. Budget Director Peter Orszag and Christina Romer, chairman of the Council of Economic Advisers, are long gone, and Lawrence Summers, chairman of the National Economic Council, plans to be back at Harvard in January.

Neil Barofsky wouldn't be sad if Mr. Geithner were to depart, too. Who, you may ask, is Neil Barofsky? And why should you care what he thinks?

Mr. Barofsky, 40, is something of a prodigy. After earning a degree in economics from the Wharton School of Business at the University of Pennsylvania and a law degree from New York University, Mr. Barofsky joined the office of the U.S. attorney for the Southern District of New York, where he prosecuted international drug gangs and later headed the mortgage fraud group.

President George W. Bush tapped Mr. Barofsky to be the special inspector general for the Troubled Asset Relief Program, even though Mr. Barofsky reportedly is a Democrat. TARP, you'll recall, is the bailout of financial institutions that followed the bursting of the subprime mortgage bubble.

TARP consists of 13 programs, for which $474.8 billion has been obligated. TARP recipients have paid back much of it, and $178.4 billion in TARP funds remain outstanding.

On Oct. 26, the second anniversary of TARP, Mr. Barofsky issued a report on the program to Congress. It concludes that, while TARP prevented financial and economic collapse, it has made possible the payment of record bonuses to Wall Street bankers, failed to increase lending to small businesses and fallen short in reducing unemployment or preserving home ownership.

TARP also is encouraging big banks to return to the risky behaviors which caused the last financial crisis, and has increased the risk the next crisis will be worse.

"The biggest banks are bigger than ever, fueled by government support and taxpayer-assisted mergers and acquisitions," the report said. "The repeated statements that the government would stand by these banks during the financial crisis has given a significant advantage to the larger 'too big to fail' banks, as reflected in their enhanced credit ratings borne from a market perception that the government still will not let these institutions fail."

Treasury officials have exaggerated TARP's successes, bungled administration of its programs and concealed information Americans have a right to know, the report said.

J.P. Freire of the Washington Examiner noted Monday that the Treasury Department has contracted with a private firm for a Freedom of Information Act specialist with experience in the "use of FOIA/PA exemptions to withhold information from release to the public."

"When Treasury refuses for more than a year to require TARP recipients to account for the use of TARP funds, or claims that Capital Purchase Program participants were 'healthy, viable' institutions knowing full well that some are not, or when it provides hundreds of billions of dollars in TARP assistance to institutions, and then relies on those same institutions to self-report any violations of their obligations to TARP, it damages the public trust to a degree that is difficult to repair," Mr. Barofsky's report said.

"When the government promotes programs without meaningful goals or metrics for success, such as its mortgage modification programs, or when it makes critical and far-reaching decisions, such as pushing for dramatically accelerated car dealership closings without considering the potential for devastating job losses, or when it fails to negotiate robustly on behalf of the taxpayer, as it did when agreeing to compensate [AIG's] counterparties 100 cents on the dollars for securities worth less than half that amount, the government invites public anger, hostility and mistrust," his report continued.

Financial news is boring, and the TARP revelations are embarrassing to Democrats, which is probably why most journalists have paid little attention to the Barofsky report.






But as the report said, what's going on now "dangerously undermines (the government's) ability to respond effectively to the next crisis." We need to understand what's happening, and why.






Telling us what's happening and why is the job journalists are supposed to do. If journalists were doing their jobs, we should know at least as much about TARP as we do about Delaware GOP Senate candidate Christine O'Donnell's teenage dabbling in witchcraft. That we don't is contemporary journalism's enduring shame.

Will Geithner's AIG TARP Loss Estimate be Greater after the Election??

The Treasury failed to make clear it had changed its calculation method

Insensitivity to the values of transparency...  

By Donna Smith
10/25/10
WASHINGTON, Oct 25 (Reuters)

The Obama administration's latest estimate of taxpayer costs of the Wall Street bailout is too rosy and could ultimately damage public trust in government, the top bailout cop said on Monday.

In its quarterly report to Congress, the Special Inspector General for the Troubled Asset Relief Program said the Treasury Department's bailout cost estimate for American International Group (AIG.N) was an example of using misleading numbers to paint a positive pre-election account of the program.

The administration on Sept. 30 slashed its estimate of the overall cost of the U.S. financial bailout by more than half to less than $50 billion on the back of a new plan to sell the government's stake in insurer AIG.

The SIGTARP report said the Treasury Department, in coming up with the fresh estimate, had changed its calculation method to estimate a $5 billion cost for AIG. That was a shift from an earlier projection of $45 billion that used a broader measure to calculate the cost.

Public anger at the bailout of Wall Street has been a major factor in congressional races ahead of a Nov. 2 election in which Republicans are poised to make major gains against Democrats who now control Congress.

The Treasury failed to make clear it had changed its calculation method and that it was relying solely on recent stock market prices for AIG shares in making the new estimate, the SIGTARP report said. It concluded that Treasury needed more transparency in its public disclosures about TARP costs.

"This conduct has left Treasury vulnerable to charges that it has manipulated its methodology for calculating losses to present two different numbers depending on its audience," the report said.

A different set of numbers will be reported to the Government Accountability Office for an assessment of the program that is set to be released in November, it said.

"Treasury's unfortunate insensitivity to the values of transparency has led it to engage in conduct that risks further damaging public trust in government," the report said.

Republican Senator Charles Grassley said the quarterly report showed a pattern of the administration trying to cast the bailout in the most favorable light.

"It raises the question of whether administration officials are trying so hard to put a positive spin on program losses that they played fast and loose with the numbers," he said.

"You can't change the way you calculate losses to come up with a rosy scenario in October and then go back to the real numbers in November without seriously damaging your credibility with the American people," Grassley added.

Treasury officials said the AIG estimate reflected a recapitalization plan that shifted preferred stock the government holds to common stock and that the Treasury's report made that clear.

"It's a complicated recapitalization plan, but I don't think there is any lack of transparency by the Treasury in the way in which we were valuing the position either in the retrospective or previously," Jim Millstein, chief restructuring officer at the Treasury Department, told reporters in a conference call.

The department in that retrospective estimated the $700 billion TARP program would end up costing taxpayers about $50 billion and once the government sold its AIG shares, the cost would drop to about $30 billion.

SIGTARP also criticized the department for failing to heed suggestions that it set "meaningful benchmarks and goals" for the government program that is supposed to help struggling homeowners who face foreclosure.

"As a result, a program that began with much promise now must be counted among those that risk generating public anger and mistrust," it said. The report urged the Treasury Department to "acknowledge" the failings of the Home Affordable Modification Program and publish more "meaningful" goals.

Treasury Department and Tim Geither lax on record keeping

According to Neil Barofsky (the Special Inspector General for the bailout fund) Timmy Geithner's challenges exceed Turbo Tax. Geithner and his staff failed to adequately document conversations involving billions of dollars of bailout money. Maybe the lack of documentation was part of Timmy's plan...

Associated Press By DANIEL WAGNER
WASHINGTON — The Treasury Department is lax about keeping records of its negotiations with bailed-out banks, including undocumented conversations in which billions of taxpayer dollars are at stake, a new watchdog report says.

Treasury fails to keep meeting minutes or notes from phone calls with banks that received money from its $700 billion financial bailout, says the report from Neil Barofsky, the Special Inspector General for the bailout fund.

Barofsky's audit concerns Treasury's negotiations to sell bank warrants — securities that allow the holder to buy stock in the future at a fixed price. Treasury received the warrants from hundreds of banks as a deal-sweetener as it injected billions of dollars to stabilize the reeling banking sector.

The report blasts Treasury for failing to keep complete notes about the process by which it sells those warrants after banks have returned their bailout money.

"When a brief telephone call can mean the difference of tens of billions of dollars, it is a basic and essential element of transparency and accountability that the substance of that call be documented," Barofsky writes.

The warrants were designed during the financial crisis to give taxpayers an extra benefit if the bailouts were successful in calming the stock market and reviving the banks. When stock prices rise, the warrants become more valuable because holders can pocket the difference.

After banks pay back their bailout money, they negotiate with Treasury over how much they will pay to buy back their warrants. Banks prefer to buy the warrants because selling them to third parties would eventually dilute the value of existing shares.

During these negotiations, officials failed to keep detailed minutes of meetings during which they set target prices, Barofsky writes. Even more troubling, he writes, is Treasury's failure to document its contact with the banks.

"Even assuming that Treasury is making decisions in every case based on reasonable and fair rationales, in the absence of documentation Treasury leaves itself vulnerable to criticism that its decisions are unwise, arbitrary or unfair," he writes.

The report also says Treasury lacks clear rules about what information is shared with banks as they attempt to bid the lowest acceptable amount to buy back the warrants. Investigators found that different banks received widely varying amounts of information, the report says.

Barofsky says Treasury should begin collecting detailed notes on meetings and phone calls, and should develop guidelines about what banks will be told concerning Treasury's price estimates.

As of March 19, Treasury had collected $5.63 billion by selling the warrants, the report says.

Treasury will review its procedures surrounding warrant negotiations and will detail its response within 30 days, according to a statement from Herb Allison, Treasury's assistant secretary for financial stability.