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Bailed-out banks show auditors the money trail

Banks that have received federal aid are using the money as they see fit, in some cases providing new loans to customers, retiring debt or buying mortgage-backed securities.
/ Source: The Associated Press

Banks that have received federal aid are using the money as they see fit, in some cases providing new loans to customers, retiring debt or buying mortgage-backed securities, a chief investigator told Congress on Tuesday.

The answer is the first of its kind since the government launched its Troubled Asset Relief Program, a $700 billion program aimed at thawing frozen credit lines by injecting banks with money. So far, the government has disbursed some $300 billion to the banks and committed to spending billions more, but has not required banks to say how they planned to use the money or track its expenditures.

Treasury officials worried extensive reporting requirements would be too cumbersome or even impossible to enforce. And when nearly two-dozen banks were asked by The Associated Press in December to provide answers, none gave specifics.

Neil Barofsky, who audits TARP spending as special inspector general for the program, said Tuesday that every one of the 364 financial institutions surveyed by his office were able to give at least some details on how the money was being used.

While some responses were general, others provided “granular detail” of their spending, including the identification of specific loans made possible with TARP dollars, Barofsky told the Senate Finance Committee.

Barofsky said a more detailed analysis of the survey will be completed by summer.

“One thing is clear: complaints that it was impractical, impossible or a waste of time to require banks to detail how they were using TARP funds was unfounded,” he said.

The government’s handling of the money has ignited populist anger and even attracted the scrutiny of filmmaker Michael Moore, who attended Tuesday’s hearing. Moore is making a documentary on the financial crisis.

Barofsky’s testimony came as the Government Accountability Office, the investigative arm of Congress, released its own assessment of the bailout program, also calling on the Treasury Department to increase transparency and oversight.

The job of managing the $700 bailout program is currently being performed by Treasury’s Neel Kashkari. Treasury declined the panel’s invitation to have him testify.

In a letter to GAO, Kashkari called the recommendations a “thoughtful step forward.” He also noted that Treasury had taken steps in recent weeks to improve transparency and oversight of the administration’s economic plan, including hiring more staff and setting up a Web site to aid public communication.

Still, lawmakers said they were frustrated with the freedom banks have been given through TARP and related programs, which Barofsky estimated puts some $2.9 trillion in taxpayer money at risk.

“This is a huge, unprecedented financial commitment,” said Sen. Max Baucus, D-Mont., the committee’s chairman. “It strains the comprehension of taxpayers and policymakers alike.”

The issue of accountability took a new turn this month, when insurance giant American International Group Inc., paid out $165 million in employee bonuses after having been promised $182 billion in government aid to keep the company afloat. Lawmakers have proposed legislation to try to recoup the money and regulate future compensation packages for financial executives.

Lawmakers also have questioned AIG’s willingness to pay off its trading partners in full using taxpayer dollars.

Barofsky said his office is investigating the issue, including who approved the payments.

Gene Dodaro, the acting head of GAO, told the committee that his staff could do more to increase transparency of the federal aid programs if it could legally demand information directly from banks that receive federal aid.

Dodaro said Congress also should give the GAO the power to investigate the Federal Reserve’s activities. Its operations are mostly shielded from auditors under banking laws intended to protect the political independence of the Fed.

Lawmakers signaled a willingness to increase GAO’s powers to follow the money trail wherever it goes. Baucus and Sen. Chuck Grassley of Iowa, the top Republican on the Finance Committee, have introduced legislation that would give GAO access to financial records and other information of banks participating in the aid program.

“I start with the premise that the public’s business ought to be public, and the expenditure of this money I’ve put in the category of public,” said Grassley.