Video: Where’s the money?

By Chris Hansen Correspondent
Dateline NBC
updated 2/9/2009 11:25:22 AM ET 2009-02-09T16:25:22

A $700 billion dollar government bailout.  We all know it's a huge amount of money.  What we don't know is how it's being spent.  The worry is it's going for things like this:

AIG:  A $440,000 lavish getaway. Merrill Lynch: A million-dollar office re-do for its former CEO just before the company got government bailout money. Wall street bonuses  to the tune of $18 billion dollars.

It's impossible to say if federal money has funded lavish perks.  Outrageous as they may sound, those corporate frills are a drop in the bucket compared with the $350 billion we've already shelled out. 

When Congress approved the rescue package last October the idea was this: To give banks money so they'd begin lending and Americans would begin spending again.  The economy, in turn, would bounce back.   But that doesn't seem to be happening.  So where is all of our money going?

Elizabeth Warren:  America is at one of those turning points, when things could go this way or things could go that way.

If anyone should know where that money is going it's this woman:  Elizabeth warren, a Harvard law professor and head of a congressional oversight panel for the government's bailout program.

Congress has askedherto help track the money:  how the U.S. Treasury is doling it out and how it's being spent.  You'll be stunned by what she's learned.

Chris Hansen: How can we guarantee that these hundreds of billions of dollars are not going for huge bonuses or executive perks?

Elizabeth Warren: Right now?  We-- we can't and don't. 

Even she, with all the resources of Capitol Hill behind her, is having a hard time figuring out just how this money is being spent.

Chris Hansen: One of the goals here in this bailout was to loosen up credit.  Has that been achieved?

Elizabeth Warren: No one knows.

Warren says she's shocked at the lack of government accounting for the bailout fund.  Half of the $700 billion has already been given out to troubled companies.

Elizabeth Warren: When treasury first released these funds, starting back in November and into December, they simply didn't put any restrictions on it. They just said, "Here's the money."

Chris Hansen: Well, why wouldn't they attach any conditions to this?

Elizabeth Warren: You'd have to ask the then Secretary of Treasury Paulson.

Chris Hansen: I guess  the Treasury Dept. would argue that it needed to move quickly. We needed to get some confidence in the banking system, we couldn't have another Lehman Brothers go under. And so we did it.

Elizabeth Warren: Well, but -

Chris Hansen: Criticizing us now is -

Elizabeth Warren:  Look, the money didn't just roll out in an afternoon. The idea that this happened in a blink, and there just wasn't time to put terms and conditions in there - it's just not true.  They didn't put terms and conditions in there because they chose not to put terms and conditions in there.

Why weren't there any strings attached? Warren believes it's because the government trusted the financial experts to decide on their own how to spend the money.  Now, the Obama administration wants a new plan in place for using the remaining $350 billion in aid.

So far, the criticism of Wall Street excess hasn't fallen on deaf ears. For example, Merrill Lynch's former CEO says he'll pay back the cost of redecorating his old office.

Chris Hansen: What should the banks have to do before this other $350 billion is released?

Elizabeth Warren: It's really up to Treasury to say, "Here's the goal." Articulate what the plan is. Make sure that every dollar that goes out directly supports that plan. And make sure there are ways to measure that the dollars are so used. We don't take those steps, the American people are right to be very angry.

That means much stricter rules and regulations for our financial institutions. While that may seem obvious to many taxpayers, it's sure to ruffle some serious feathers on Wall Street.

Roben Farzad: As much as you're tempted to do so, you really don't want to strangle the golden goose.

Roben Farzad, senior writer at Business Week, offers a different -- if unpopular -- take on Wall Street.  He -- and others -- say over-regulation could kill the capitalist spirit.  Washington's already moving to impose new restrictions. This week, the president announced a $500,000 salary cap for top executives at companies receiving bailout funds.

Roben Farzad: You're not in the monastery business on Wall Street.  You're there to make a killing.  You're there to make a profit. If you over-regulate Wall Street, you might as well call it suffocating Wall Street. And the best talent will flee. And then you, as a taxpayer, what do you have left? You have these zombie companies that you're never gonna see be profitable again.

Besides, he says, there's plenty of blame to go around for the mess we're all in:  from Wall Street to Main Street.

Roben Farzad: I mean, Wall Street didn't stick a gun to your head and say, you know, "Go out and take this sub prime mortgage and buy a $900,000 home when you don't even have $20,000 in the bank." Now the entire system is paying the price for that.

Farzad agrees there needs to be regulation on Wall Street, but he hopes that any new rules will be constructive.

Roben Farzad: We really have to rebuild and embolden Washington to be a smart regulator, not a stifling regulator. You need Wall Street to work.

Chris Hansen: The banks have said something like this, "We need the freedom to be business people. We need to take this money to save the bank, and we'll decide what to do with it.” And to have the government too involved smacks of socialism.

Elizabeth Warren: You know, they had the freedom to be business people for the last 50 years. And they have brought us to a place where we talk repeatedly about the imminent collapse of the financial system.

Ultimately, it's up to the government, which is shelling out the money, to hold bankers' feet to the fire.  Under the previous secretary, at least, the treasury hadn't seemed willing to do that.

Elizabeth Warren: We sent 45 questions over to Treasury about the operation how the money was being spent and what the plan is here. and they didn't answer more than half of those questions.

Chris Hansen: They didn't answer more than half of the questions?

Elizabeth Warren: That's right. Just didn't even answer them.

The danger, she says, is that if the government doesn't make the banks account for every dollar they're getting, we'll wind up spending trillions to get ourselves out of a hole - only to find ourselves deeper in it.

Elizabeth Warren: Right now we're just running up the debts. You know, the debt clock for America is spinning overtime. If money's not spent well, if we don't get the wheels back on the bus in pretty quick order, then it truly is the case that we'll be paying for this for a very long time.

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